The process of applying to the court for authority to administer the estate is commonly known as probate. Only in rare circumstances is probate not required, such as where all assets were jointly owned.
From 1 April 2019, probate fees will depend on the value of the deceased’s estate, as shown below:
(Source: The Non-Contentious Probate (Fees) Order 2018)
While estates between £5,000 and £50,000 will benefit, those with estates above the £50,000 threshold will see probate fees increase, in some cases very significantly.
As the fee must be paid before the assets of the estate can be accessed, the increase may also cause problems where those administering the estate do not have access to other funds.
If someone with a sizeable estate has passed away recently, it will almost certainly be worth ensuring the application for probate is made before 1 April 2019, wherever possible.
Where someone is terminally ill, consideration should be given to so-called ‘deathbed’ gifts. As any such gifts will not form part of the estate, the estate may fall into a lower tier, reducing the probate fee.
Usually deathbed gifts will not reduce the amount of Inheritance Tax payable. However, as entitlement to the Residence Nil Rate Band is based upon the value of the estate only (disregarding any lifetime gifts) and is tapered away above a £2m threshold, some saving may be possible if gifts reduce the portion of the estate falling into a band just above that threshold.
Those still in good health could consider using a probate trust, of which they are settlor, trustee and beneficiary – retaining control of the trust assets and access to these at any time. Assets within a probate trust are not part of the estate for probate fee purposes, and a probate trust might also reduce the Inheritance Tax payable if it restores an entitlement to the Residence Nil Rate Band.
Alternatively, an insurance policy (written under trust) could be taken out to cover the likely probate fee, alongside covering some or all of a likely Inheritance Tax liability.
The government has introduced these changes under the ‘Non-Contentious Probate (Fees) Order’, a statutory instrument that does not require a vote of Parliament.
The changes are expected to raise an additional £145m towards the running of the courts and tribunal service, and the Ministry of Justice has acknowledged that the value of an estate has no bearing on the cost of granting probate.
Many therefore see these new probate fees as a very contentious stealth tax (of up to an extra 0.5% on top of the rate of Inheritance Tax).
Regardless, there are still some steps that you may be able to take to mitigate the potential impact of the changes, as previously highlighted.
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