Inheritance Tax  

Government won't budge on probate fee hike

Government won't budge on probate fee hike

The hike in probate fees is likely to be considered a tax for statistical purposes, but the government will go ahead with the increase anyway.

In its 205-page long economic and fiscal outlook, published on Wednesday (March 13), the Office for Budget Responsibility stated that given the structure of the new rates, which range between £250 and £6,000, HM Treasury expects the Office for National Statistics to classify the sums collected as a tax on capital rather than a payment for a service.

Payments for service are treated as negative spending and are factored into the Ministry of Justice's resource departmental expenditure limit budget.

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As a tax, the probate fees will add to receipts and spending equally, because it is offset by the removal of the negative spending from the Budget, the OBR stated.

Nevertheless, the government is sticking to its original argument.

A Ministry of Justice spokesman said: "This is not a tax – and any decision by the ONS to define it as such would be purely for accounting purposes.

"The income raised from probate fees will go towards funding a more efficient and effective courts and tribunals system."

In February, MP members of the delegated legislation committee agreed with the Ministry of Justice's view that the mandatory charge on the estates of deceased people was a fee for the provision of services, and not a tax.

If it were a tax, the plan to increase probate fees, which were first unveiled in 2016, would have to be included in the Finance Bill and so debated and voted on in parliament.

A fee increase does not have to be voted for by MPs.

From April 1, the minimum fee will increase from £215 to £250 for estates with assets of less than £500,000, the fee is £4,000 for estates valued at more than £1m and £6,000 for estates worth more than £2m.

This charge is additional to inheritance tax.

The OBR report also revealed the new fee structure is expected to raise around £155m a year for the government.

However, OBR officials reduced its inheritance tax forecast by around £5m a year, to reflect the incentive for individuals with estates worth close to the new probate fee thresholds to reduce the value of their estates to pay a lower fee.

This effect is expected to be small, since the inheritance tax liability itself already provides a significant incentive to reduce the value of estates, the report stated.

According to Rachael Griffin, tax and financial planning expert at Quilter, an "exorbitant hike in probate fees are just weeks away from becoming a reality after months of contestation".

She said: "Ultimately, probate fees should relate to the work carried out and should clearly be labelled as a fee. If they are being used for other purposes, then it is a tax and needs to be labelled as such and go through proper process.

"People concerned about how beneficiaries will pay the probate fees could leave sufficient funds in a life insurance policy, and provided the policy is written in trust, it can be accessed immediately on death, without the need for probate."