Paying for a grant of probate – administrative fee or death tax?
'A Probate is one of the most serious and significant documents for all of us – it gives the Executor or Administrator full control of the entire wealth of another person who is, of course, no longer around to monitor what is done with it.'
A recent Government Consultation has proposed a significant increase in some of the fees that have to be paid following a death for the ‘Grant of Probate’ (or ‘Letters of Administration’ where there is no Will). This is the formal document that enables the assets of the person who has died to be organised and then distributed to those who are to benefit. Bircham Dyson Bell LLP has responded to the Consultation to say that the nature and scale of the increases will make the charge more akin to a probate tax than a probate fee. Under the new proposals the highest level of fee is to be £20,000 – this to be paid on top of any inheritance tax bill.
No-one would dispute that there need to be some formalities, when a person dies, to authorise the appropriate people to deal with the property and assets, pay valid debts, and then transfer funds, items and property to those who are entitled. There would be chaos if creditors, family and friends could all pitch in to take what they believe they are entitled to under the Will or intestacy. The point at issue here is how much those formalities should cost, and whether they should be an appropriate and fair charge for work done.
The long established system in England and Wales is that a specific part of the Courts system, the Probate Registry, will grant the Probate (or Letters of Administration) to the executors or administrators once they have proved their entitlement to deal with the property left on death. It is little more than historical accident that this process is still part of the Court system. Papers, prepared by the legal advisors or the family, are lodged with the Probate Registry. Very occasionally difficult questions may arise (in which case the matter may sometimes end up in the ‘proper’ Courts), but in the great majority of cases all the paperwork is in order and all that the Probate Registry has to do is to check it and complete the formalities.
Unless the estate is very small or contains particular sorts of assets, for most practical purposes nothing can be done with or to the property of the person who has died without this authorisation. So where a Grant of Probate or Letters of Administration is needed, it is not a matter of choice whether to obtain one: almost everything will remain frozen until this is available.
Currently, the charge for this administrative task of checking the paperwork and issuing the Grant of Probate, is a flat rate of £155 if the application is made through a solicitor and £215 for personal applications. The Consultation Document makes it explicit that the proposed increases are not required to fund the Probate Service, which it says is fully self-funding on the current fees. In other words, the current fee reflects the level of work carried out by the Probate Registry.
However the Consultation Document goes on to say that ‘In the light of the need to eliminate the deficit, we need to go further and reduce the overall demands of the Courts and tribunals on the Exchequer’. In other words, the proposal is for the bereaved to have to increase what they pay for what is essentially an administrative task so that the Government can contribute less towards running other parts of the Courts system. Since the maximum fee of £20,000 will bite on an estate of £2m, these are not necessarily very large estates, taking account of house prices in some parts of the country.
If the Government wishes to increase the revenue it raises when someone dies, it would be better to do this by straightforwardly increasing inheritance tax, so that at least the changes would dovetail properly with existing tax rules. Increasing the probate fee would be a very crude means of achieving the same result, and would have particularly unattractive consequences. For public policy reasons, assets left on a death to a husband, wife or civil partner, or to a charity, are all exempt from inheritance tax. Because probate fees were never intended as a tax, these exemptions are not available for these fees. When the fees merely reflected the work that needed to be done by the Probate Registry, the lack of exemptions was not an issue. By contrast, under the proposals bereaved spouses and charities would be penalised in order to help fund other parts of the nation’s Courts service.
Worse still, the Probate Registry does not issue the grant of Probate until the probate fee has been paid. In other words, the fee has to be paid before the Executors or Administrators have received the very document that will allow them to access the funds with which to pay the fee. When the charge was a small administrative fee, this could be coped with in one practical manner or another. Finding £20,000 is quite a different undertaking. This could be a significant cash flow difficulty at a time when families already have to meet unexpected expenditure.
No charge is currently levied on small estates for obtaining a Grant of Probate or Letters of Administration, and under the new proposals the value limit would increase to £50,000 from its historic 1999 figure of £5,000. According to the figures in the Consultation Document, this would produce a ‘nil’ fee for 57% of all estates in England and Wales. A Probate is one of the most serious and significant documents for all of us – it gives the Executor or Administrator full control of the entire wealth of another person who is, of course, no longer around to monitor what is done with it. Obtaining Probate needs to be approached with due seriousness, both by the person applying for it and by the Probate Registry in granting it. Some might argue that, even for smaller estates, a modest fee is one way of signalling that importance. Others might say that the figure should at the very least be increased in line with inflation since 1999, and that a certain level of cross-subsidy by larger estates of smaller ones is not unfair.
Be those arguments as they may, an increase from a cost of £155/215 (which makes neither a profit nor a loss for the Probate Registry) to a scale which goes up to £20,000, does not have a Robin Hood purpose of taking from the rich to give to the poor. The acknowledged objective is to reduce the drain on the Government’s purse. In other words, a tax.
03 May 2016