Probate fee rise is a tax, government report says

The overhaul of fees has caused fresh controversy after the new fee structure was referred to as a tax by the government in a report, despite ministers saying it wasn’t last year.

Probate fees are set to go up in April and could cost families as much as £6,000, raising around £155 million a year for the government.

Last month, ministers came in for criticism after classifying the rise as a fee and not a tax, which allowed the change to bypass a debate in Parliament. 

The Institute of Chartered Accountants in England and Wales (ICAEW) went as far as to call the change an "abuse of power."

In its accompanying report to the Spring Statement on Wednesday, the Office for Budget Responsibility (OBR) said the Treasury is expecting the Office for National Statistics to classify probate fees as “tax on capital rather than a payment for a service”.

Usually, if a government creates a new tax it has to be introduced in a parliamentary bill, where it can then be debated and voted on.

Rachael Griffin, tax and financial planning expert at Quilter, says: “Ultimately, probate fees should relate to the work carried out and should clearly be labelled as a fee.

“If they are being used for other purposes, then it’s a tax and needs to be labelled as such and go through proper process.”

A Ministry of Justice spokesperson says: “This is not a tax – and any decision by the ONS to define it as such would be purely for accounting purposes. The income raised from probate fees will go towards funding a more efficient and effective courts and tribunals system.”

Probate fees give legal control to the family over the estate of someone when they pass away.

Currently, a flat fee of £215 applies in England and Wales - or £155 if you use a solicitor – on estates above £5,000.

The threshold is set to be lifted to £50,000 from April – exempting 25,000 estates annually from fees, according to the Ministry of Justice.

However, if the estate is above this you will see a rise in probate fees. Estates valued between £50,000 to £300,000 will be charged £250, going up to a maximum £6,000 for estates more than £2 million.

Those with larger estates could see costs soar. According to figures from Quilter, a £500,000 estate would pay more than 10 times the current fee at £2,500, while those in the top tier pay 3,771% more.

The government says that for those who do pay, around 80% of estates will pay £750 or less.

Ms Griffin says: “An exorbitant hike in probate fees is just weeks away from becoming a reality after months of contestation.

“People concerned about how beneficiaries will pay the probate fees could leave sufficient funds in a life insurance policy, and provided the policy is written in trust, it can be accessed immediately on death, without the need for probate.”

Probate fee changes explained

Currently, a flat fee of £215 applies in England and Wales (£155 if you use a solicitor). The new charges will be linked to the size of the estate and will be as follows:

  • Up to £50,000: no charge
  • £50,000- £300,000: £250
  • £300,000- £500,000: £750
  • £500,000 to £1m: £2,500
  • £1m to £1.6m: £4,000
  • £1.6m- £2m: £5,000
  • Above £2m: £6,000

Source: Ministry of Justice

The controversial new structure was proposed in March last year, but was quickly shelved in April 2017, as there was not enough time to get the legislation finalised in time for the general election in June 2017.

This article was originally written by our sister publication Moneywise.

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