The Chancellor’s Budget did not create many waves, save for his increase on National Insurance Contributions for the self-employed.  There were rumbles that he would tinker with inheritance tax but he didn’t. 

Quietly in the background the Probate Registries and Private Client lawyers have to contend with the biggest shake up to probate applications for years.  In recent times, there has been a drive to increase revenue for the Ministry of Justice (MoJ) by hiking up court fees.  The Probate Registries are no longer immune from this. 

New fee scale

A Grant of Probate is the document required by a deceased’s personal representatives to access their assets and distribute them to beneficiaries.  With effect from May (the exact date remains unknown) the application fee for a Grant of Probate is to increase by as much as 12,904%.  The current fee is £155 for a solicitor’s application.  A fee scale is to come into effect where those estates in excess of £1million and up to £1.6million will be £12,000 and those in excess of £2million it will be £20,000.  It is anticipated the new fee scale will raise £250 million per year.

Given the fee is directly linked to the value of the estate, it certainly feels like a tax.  It only operates on death so this is to all intents and purposes an inheritance tax through the back door.  

There is limited information on what the final provisions and implementation date will be.  In response to the consultation, of 831 responses only 13 agreed with the proposal.  The Probate Registries, many of which have been closed or are very understaffed, will be inundated with applications to beat the May deadline.  There is an expectation it may now take 3 to 4 months to obtain a Grant of Probate.  To put this into context, it currently takes 1 to 3 weeks.

Implications and approaches 

So, what does this mean for both solicitors and clients?  A client with a home that is not held as joint tenants with the co-owner (usually a spouse or civil partner) may need to pay the probate fee just to transfer their home. 

It is possible to transfer assets into joint names with a spouse or children but it is important to tread with caution.  ISAs cannot be held jointly so for these to retain their tax-free wrapper a Grant of Probate will be required.  The fee may be reduced if all other assets are held jointly or the assets held in the deceased’s sole name are limited in value.  The fee is only calculated on the basis of assets ‘passing under’ the Grant.

This approach would not be appropriate for interests in a partnership or shares in a private company.  Any transfer of shares is usually governed by the Articles of Association or Shareholders Agreement.  On death, the company would want sight of a Grant before transferring the shares.

The three Ds

One must be very wary of the three Ds before transferring any assets into joint names, particularly if the recipient is not a spouse/civil partner.  Death, divorce and debt are all potential threats to financial security for the joint owner.  Careful consideration is needed before transferring assets.  In addition, there may be tax implications for inheritance tax, capital gains tax and stamp duty land tax.  Much will depend upon the recipient and nature of the asset.

Personal representatives may be tempted to give provisional figures in an inheritance tax account to speed up the process and avoid the costly probate fee.  Such an approach may be ill advised.  Personal representatives are required to give a full and complete account of the deceased’s assets to HM Revenue & Customs.  Failure to do so can result in penalties and interest, all of which they are personally liable for.

Lawyers to pick up the tab?

The question of payment of these fees is also a hot topic.  Early indications are that funds will be released by banks and investment managers to pay for the court fee.  According to the MoJ Consultation response, they suggest solicitors could pick up the tab although they acknowledge the practice may not be 'universally popular'!