The Ministry of Justice is proposing eye-watering probate fee increases – effectively increasing the inheritance tax rate by 2.5% for larger estates. The largest estates will pay a whopping £20,000 to be allowed to distribute assets -that is an increase of over 9,200% on current fees!

Update March 2019: These proposals have been put on hold, but have likely to be replaced by new probate fees from April 2019 (to be confirmed).

Key points

  • Probate fee increases are only proposals at this stage
  • Probate fees would rise from £215 to a maximum of £20,000 under the proposals
  • Estates under £50,000 would pay nothing in fees
  • £250 million would be raised by this measure
  • The probate fee increases add 1% to inheritance tax for most larger estates, which is an effective increase to the inheritance tax rate of 2.5%
  • A final decision is expected April 2016

What is probate?

When someone dies their personal representatives must pay all debts and tax due and then distribute the remaining assets to the deceased’s beneficiaries. If your estate is valued over £5,000, or it contains land, property or shares then usually you will be required to apply for probate. This is done by application for a Grant of Representation from the Probate Service, which is a branch of the State.

Probate fees at present

Currently, the application costs a flat fee of £215 (£155 via a solicitor), and there is no fee if the estate is valued at less than £5,000.

Probate fee increases – the proposals

The Government wants to raise the lower limit on estates that pay no fee to £50,000, but instead larger estates would pay a much greater fee. The measure is expected to raise an additional £250 million according to the Government.

Under the proposals the new probate fees would be:

  • Estates under £50,000 – £o
  • £50,000 to £300,000 – £300 (39% increase)
  • £300,000 to £500,000 – £1,000 (365% increase)
  • £500,000 to £1 million – £4,000 (£1,760% increase)
  • £1 million to £1.6 million – £8,000 (3620% increase)
  • £1.6 million to £2 million – £12,000 (£5,481% increase)
  • Over £2 million – £20,000 (9202% increase)

Inheritance tax through the back door?

Recently, the Chancellor of the Exchequer announced an increase to the inheritance tax threshold from April 2017 for property owners, which, under the right circumstances, could increase the tax-free inherited assets to £1 million for a married couple.

For a married couple inheritance tax is paid at 40% on assets over £650,000.

If the probate fee increases are adopted the effective inheritance tax charge would increase for most estates from 40% to 41% on the taxable element. This is an inheritance tax increase of 2.5% for most taxable estates.

How to avoid probate fee increases

The only way to avoid the probate fee increases (if they are adopted) is to reduce the value of your estate when you die. You could do this with the help of Financial Planning if we can help you to make gifts to your family while you are still alive, provided you have enough to provide for your future lifestyle needs. Contact us to discuss your inheritance tax position.

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