Rocketing probate fees and additional residence inheritance tax (IHT) nil rate band

By Jeff Gitter, Senior Partner
020 7490 7766
jeffgitter@lubbockfine.co.uk

 

If you’re planning to die in an economically attractive way, you’ve probably left it too late!

First, the good news. An additional nil-rate band is being introduced on estates where death occurs on or after 6 April 2017 and where an interest in a main residence passes to direct descendants. The amount of relief is being phased in over four years rising to £175,000 for 2020/21. For married couples and civil partners the relief is effectively doubled as each individual has a main nil-rate band and each will potentially benefit from the residence nil rate band. Restrictions apply where estates are in excess of £2m and various other criteria need to be met to qualify. For a full summary of IHT, please download our Fact Sheet here.

Now the not so good news.

Probate fees to skyrocket

What the Government giveth with one hand, it partially claws back with the other with probate fees now set to rocket. On 24th February, the Government published its response to a consultation on the reform of probate fees. This will see probate fees increase from the current flat fee of £155 up to a staggering £20,000 on certain estates.

The proposal is for a new, tiered approach with, for example, estates valued between £0.5m and £1m attracting fees of £4,000 and estates valued at over £2m attracting fees of £20,000. This is likely to cause the executors of estates real headaches in some cases, as these fees will need to be paid up front. If no funds are available or if funds can’t be accessed, the Government seems to expect executors or beneficiaries to fund the probate fees themselves. Whilst fees for estates below £50,000 will be scrapped (although in reality, probate is often not required for estates of that size), for estates between £50,000 and £300,000, the fee will almost double.

Where probate fees cannot be paid or where cash cannot be accessed, executors may make either a personal loan, seek a bank loan or borrow from beneficiaries. These solutions seem to ignore the realities of many estates and the fact that executors/beneficiaries will often not be able to come up with such large amounts. Whilst banks and building societies have traditionally offered short-term probate loans (ahead of probate being granted), it’s likely that they will now start to offer short-term probate fee loans.

The government is proposing to legislate so as to try to implement the changes by May 2017 although the proposal is likely to result in considerable opposition as well as a rush to get probate applications in before the new fees take effect. 

New probate fee structure – Ministry of Justice

Value of estate before inheritance tax Proposed fee
Up to £50,000 £0
Between £50,000 and £300,000 £300
Between £300,000 and £500,000 £1,000
Between £500,000 and £1m £4,000
Between £1m and £1.6m £8,000
Between £1.6m and £2m £12,000
Above £2m £20,000

 

For further information on inheritance tax, please feel free to download our fact sheet and/or speak to your contact partner or to Jeff Gitter.

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