Private client industry slams proposed "death tax"

07/11/2018 News Team

The UK Government announced an increase in the probate fee structure earlier this week, meaning that from April 2019, fees payable to court to obtain  a Grant of Probate or Letters of Administration, which are needed to take control of a deceased’s estate, will be significantly higher.

Despite amending the original proposals, which were shelved 18 months ago, including capping the top level of fees at £6,000 as opposed to the original suggestion of £20,000, the announcement has provoked negative reactions from the private client industry.

John Annetts, partner and head of administration of estates at Howard Kennedy, acknowledged that the “the government has paid some attention to the objections that the legal profession and other stake holders made when they first announced that they intended to bring in these changes”, as the threshold for the value of estates to which the fees will apply has increased from £5,000 to £50,000. However, “the new probate fee structure will still effectively represent a new "stealth" inheritance tax,” he stated. 

Nick Rucker, national head of tax, trusts and estates, Irwin Mitchell LLP said that the fees are “a new tax in all but name. It is described in the Minister’s statement as ‘a fair and more progressive way to pay for probate services’ which is misleading as the current fees cover the cost of providing this service. 

“It’s also potentially going to lose a lot of inheritance tax for the government and prove counterproductive as a measure. Many providers of ‘trusts to avoid probate’ will get people to pay for setting up trusts in their lifetimes so that probate is not needed when they die. There are already such schemes out there, often sold with dubious claims, and it is likely they will be sold even more aggressively now. People may be enticed to sign up to them and once set up, there is a risk that these trusts do not pay the proper tax that is due on a death because an inheritance tax account is one of the essential elements of obtaining probate."

Despite these plans being “an improvement on the original ones”, Mr Rucker is anticipating “serious ramifications from this announcement.”

James Ward, head of private client at Kingsley Napley, explained that he is concerned that the new fee structure will “leave many estates struggling to pay the fee up front when assets are tied up in frozen bank accounts or property.” 

However, he continued to say that his “greatest fear” is that “this ‘tax’ will push people away from using Wills as the means for leaving assets on death. In order to reduce their estates before death, individuals may turn to gifting during their lifetime which could leave them financially vulnerable or use the survivorship rules of joint property and bank accounts. The survivorship rules see property automatically passed on death rather than via the Will and therefore the value is not included in the value of the estate at the grant application stage. It is very effective in some cases but can be lead to inequality between children and a misunderstanding as to who gets what and not fulfil the deceased’s wishes.”

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