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02nd March 2017

New tax announced - you'll pay up to £20,000

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Problem

There is a new one off tax. It will be £20,000 for Millionaires, or £4,000 for “Middle England”.

The new tax is disguised as a court fee which is payable when you die, and may also affect the estates of those who have recently died. An Inheritance Tax increase by any other name?
Background

The government has introduced a new stealth tax on large estates, by announcing an increase in Probate Registry fees after April (the administrative fee paid for the Grant document, which is currently £155). However, this may affect the estates of those who have already died (but whose Executors do not yet have a Grant), as well as all future estates (except those under £50,000). This increase is despite an overwhelmingly negative response from solicitors who were able to comment on the original general proposal of a future large increase.

The effect seems to be that those with “larger estates” (over £50,000) will subsidise the court costs for those with small estates, although it is considered by many that there will be a healthy surplus - an involuntary tax. It is possible that it is also to subsidise the extra costs often involved when executors try to DIY a Grant application (trying to help them sort out the mistakes they commonly make is quite time consuming for the Registry and yet they charge very little extra for doing so). It will be difficult for all heirs, who will need to find the money before they can access the estate itself, but especially for e.g. a widow who inherits a house from her husband, but very little cash.

The increased Probate Court fees will take effect in May – presumably from 1 May although the specific date is not yet available.

What can be done for existing estates?

You need to discuss with your solicitor whether they can turn around the paperwork (usually estimated by HMRC to require at least 6 months), in the next few weeks.

For an estate to get through the Probate Registry before the increase, is likely to mean completing all the paperwork as a rush job within the next week or so! Even then, there is no guarantee that the deadline will be beaten – because we are dependant on paperwork being completed by HMRC. That’s because the larger Inheritance tax form which has to be completed for those estates which are either large or have a complication, such as lifetime gifts or foreign assets, has to go to HMRC, (together with a proportion of any IHT due) and be returned back receipted, before the application for a Grant can be made to the Probate Registry.

HMRC used to take two weeks to return the form, but are currently taking between 3 to 7 weeks – and that delay is likely to get longer, given the Easter holidays and the probability that executors with large estates will want to pay the extra legal fees involved in rushing it through to try to beat the new Registry charge.

Once the IHT form is received back, the Registry then usually take two weeks to process – but again are likely to experience backlogs. It is unclear whether they will charge on the basis of the date the application is received – or the date they reach it.

For example, for an executor or beneficiary of a £2m estate, faced with paying an unexpected extra £20,000 in Probate Registry fees, it’s well worth the gamble of trying to get the papers in early.

What can be done while you are still alive?

The fee is based on the size of the estate for probate Registry purposes – this is not the same as the estate for general ownership purposes, nor for tax purposes.

For estates over £0.5 m it will be worth considering conversion to joint assets which pass by survivorship and not using a Grant. This may be particularly relevant to clients who currently have a legacy in their Will of the nil rate band amount (very common before the law changed in 2007, and still favourable for tax in some circumstances – as well as being useful for other purposes).

For estates over £1m (where the fee will be £8,000 or £12,000 or £20,000), it may be worth considering lifetime trusts (including bare trusts) and gifts.

For everyone with an estate over £50,000, it will be worthwhile signing the parliamentary petition against the changes , which Solicitors For the Elderly have set up online for signing here. Or call/email/write to your MP – and point out that, as with any tax, the ones who pay it are likely to be those at the lower end of the financial scale, and the very elderly, those who have already lost the mental capacity needed to take any action, or who for whatever reason aren’t in a position to instruct solicitors to advise them. It was on this basis that MPs rejected the proposal to remove the helpful Deeds of Variation, so they may take notice again – if enough voters complain.

Next step

For more information please see our guidance note which may help. If you require advice on this, or any estate or tax matter, please contact one of our contacts in the Private Wealth Team

  • Milton Keynes - Carolyn Bagley - 01908 247015 or click here to email Carolyn.
  • Cambridge - Emma Satterly - 01223 461155 or click here to email Emma.
  • London - Francesca Rossi - 020 7400 5037 or click here to email Francesca.