Homeowners to be hit with £20k probate fees

Probate is the formal legal process for dealing with a person’s money, possessions and final wishes after they die - authorising a personal representative to deal with the deceased’s estate, paying bills and taxes before distributing assets among beneficiaries.

It is usually required if a deceased person has no will, has more than £5,000 in savings and their estate includes assets such as property or shares.

Following a consultation from the Ministry of Justice earlier this year, the government is planning to introduce a sliding scale of charges for probate fees, which previously cost £215.

Estates worth between £1.6m and £2m will be charged £12,000. Only those below £50,000 will be exempt from charges.

Law firm Irwin Mitchell stated the new rules are effectively a new tax, which will hit property owners who are asset-rich but cash-poor.

Individual beneficiaries, who are asset-rich but cash-poor, would be badly affected by the need to raise such considerable sums to obtain probate. Sarah Phillips

The law firm warned people could try to sidestep the punitive charges, which may have unintended consequences and could lead to:

• Older people being pressured to give away assets to avoid high charges;

• Older people taking risky measures, such as putting money into accounts, leading to the right beneficiaries missing out on an inheritance;

• Beneficiaries being forced to take out large loans to be granted probate.

The firm suggested the most effective way for families to avoid the new charge is to ensure couples own their homes in joint names, or as tenants in common, or to write assets into a trust.

Sarah Phillips, partner at Irwin Mitchell Private Wealth, argued it is largely administrative function, for which fees up to £20,000 are quite disproportionate.

However, without it executors cannot obtain the grant of probate to enable them to administer a deceased person’s estate.

“Estates would be unfairly affected, as they would pay inheritance tax on the fees as well, which are not deductible from the value of the estate when calculating tax payable,” she stated.

“Individual beneficiaries, who are asset-rich but cash-poor, would be badly affected by the need to raise such considerable sums to obtain probate; many will have no alternative but to go to the expense of a bank loan to pay the fee.”

She pointed out older people may be pressurised by families to give away assets in their lifetime, in order to avoid these high charges. “The risk is of many older people living in houses now owned by children who don’t always act in the best interests of their parents.”

Victor Sacks, an IFA at VS Associates, said that with all that’s been going on politically, these changes have gone under the radar.

“Utilising trusts, tenants in common, etc, are effective ways to combat such exorbitant costs and also ensure those left behind aren’t scratching their heads wondering what to do next,” he stated.

Along with probate costs, is the time it takes to sort out as well. Problem is, a lot of people think that addressing their financial affairs as described, is predicting their demise, so will put it off.”

peter.walker@ft.com