New stealth death tax of up to £6,000 is 'abuse of power', say accountants as fury mounts against probate fee hikes

  • 'Drastically' increased fees must be paid upfront by grieving relatives
  • Fees are due before they raise money from an estate, such as by selling house
  • Fees are 'tax on wealth', that will make £150m to help run MoJ, say accountants
  • Probate fee hike will be 3,771% - from £155 to £6,000 - for biggest estates
  • Government defends plans, saying 25k more estates will pay no probate fees
  • 'Fees are vital to the effective running of our courts and tribunals,' it says 

By TANYA JEFFERIES, PENSIONS AND INVESTMENT EDITOR

Updated:

The Government is being accused of 'abusing its constitutional powers' over plans to impose stealth death taxes of up to £6,000 on the bereaved.

An influential accountants' group went on the attack over the new probate fee system, joining resistance mounted by a House of the Lords committee, charities, lawyers and financial experts. 

The 'drastically' increased fees must be paid upfront by loved ones before they can raise money from someone's estate, for example by selling a house, points out the ICAEW body of chartered accountants.

Probate 'stealth tax': Drastically increased fees must be paid upfront by loved ones before they can raise money from someone's estate

Probate 'stealth tax': Drastically increased fees must be paid upfront by loved ones before they can raise money from someone's estate

The fees are 'effectively a tax on wealth', which is expected to raise £150million to pay for running the Ministry of Justice, so should be subject to scrutiny like any other tax, it says.

The Government plans to hike the cost of applying for probate, an important step to gain control over an estate after someone dies, from next April by using its existing powers not passing a new law. 

Critics claim the new fees system, based on the size of an estate, will be unrelated and in many cases disproportionate to how much it costs to process a probate application - which makes it a tax, requiring legislation.

But the Government disputes this, saying: 'Parliament gave us the power to set these proposed fees, and they will be fully scrutinised and debated by both Houses.'

At present, applying for probate costs a flat fee of £215, or £155 if a lawyer does it on your behalf. 

In future, it will cost nothing for estates under £50,000, which is more lenient than the current £5,000 threshold for exemption.

But £250 will be levied on estates worth £300,000-£500,000, rising to £6,000 for those worth £2million-plus. See the chart below.

New probate fees: System will be based on the size of an estate, replacing fees fixed at £215  for all (Source: Ministry of Justice)

New probate fees: System will be based on the size of an estate, replacing fees fixed at £215  for all (Source: Ministry of Justice)

The fees are lower than under previous proposals, which were ditched just ahead of last year's election. These would have set the bottom rate at £300 for those inheriting £50,000-£300,000, escalating to £20,000 for estates worth more than £2million.

A joint committee of Parliament made up of MPs and peers claimed the old plan was unlawful, because the fees were equivalant to a new tax.

The Government's latest proposals have sparked a similar outcry, and prompted experts to raise a range of practical issues.

The ICAEW points out higher probate fees will be levied on a entire estate including a house, while at the same time a recent Government allowance now lifts most homes out of inheritance tax. 

10 ways to avoid inheritance tax legally 

How to stop the taxman grabbing some of your estate from your loved ones - read more here.

It adds: 'The probate offices will need to gear themselves up for an influx of applications in advance of the planned increases as executors rush through the process to try and beat the price hike.'

A Ministry of Justice spokesperson says: 'Our system will see thousands of bereaved families paying no probate fees at all – protecting an additional 25,000 estates each year.

'Fees are vital to the effective running of our courts and tribunals, ensuring access to justice and protecting vulnerable victims.' 

The Government says the  Anti-Social Behaviour, Crime and Policing Act 2014 allows it to propose a fee, or scales of fees, without restrictions on how it does that. The MoJ announcement of its plans is here.

What do finance and legal experts say?

Probate fee hike of 3,771% for biggest estates

'The house of cards the Ministry of Justice has based its probate hike on is coming crashing down as the ground from under them is shifting in every different direction,' said Rachael Griffin, tax and financial planning expert at Quilter, following the ICAEW's intervention today.

'The House of Lords also turned their backs on the MoJ labelling the hike, as it should be, a stealth tax.

'The move from a flat rate fee structure to one which is tiered based on assets could, in theory, have been an acceptable model, but the level of fees imposed are unjustified.

'They are far more expensive then covering the cost of the administration, which is what the fee should be. This current suggestion needs to go through the proper process for introducing a tax, not a back-door conjured up by the MoJ.'

Quilter says that while the Government has ensured fees will never be more than 0.5 per cent of the value of an estate, a £500,000 estate will pay more 10 times more at £2,500, while an estate worth more than £2million could pay up to 3,771 per cent more.

Government should increase MoJ budget instead

When the new fees were first announced this month, Ian Dyall, head of estate planning at Tilney, said: 'This is essentially a form of stealth tax.

'There is no reason that a large estate is any more costly to administer than a smaller estate so the additional cost is pure revenue raising.

'I appreciate that the courts are under pressure financially, but, in my opinion, if they need more money, then the Government should provide them with a higher budget rather than creating these hidden sources of revenue.'

People will gift rather than will assets to avoid fees

James Ward, head of private client at law firm Kingsley Napley, said: 'My 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.'

Government will lose inheritance tax so it's counter-productive

Nick Rucker, national head of tax, trusts and estates at law firm Irwin Mitchell, said: 'The announcement that hugely increased probate fees are going ahead in April - a new "death tax" - is a new tax in all but name and could have serious consequences for the collection of inheritance tax.

'It will present real problems for those who have land but don’t have cash. An example would be widows where the property remained in the name of a late husband.

'In such a case no inheritance tax would be payable but a widow would still need to pay the much higher fee in order to get probate and the property transferred into her name.

'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.'

Last attempt to raise fees dropped 'coincidentally' at election time

Matthew Yates, partner at Hunters Solicitors, said: 'This is essentially a form of taxation, being proposed outside of the Budget presumably to attract less attention and scrutiny.

'The last attempt by government to substantially increase probate fees was quietly dropped last year, coincidentally just at the time Theresa May decided to call an election. However there is no likelihood of an imminent poll to allow electors to express their view.

'The Government is probably banking on there being less opposition to an increase which is significantly less than they proposed in 2016.

'Without a concerted effort by practitioners, professional groups and the general public, the Government may well be able to push this increase through.'

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