On the 18 February 2016 the Government announced a consultation over the proposals to reform probate fees - the fees payable at the Probate Registry to the Court service when one applies for a Grant of Representation in order to administer an estate.
And According to North West-based law firm Kirwans, the farming community is likely to be disproportionately hit by these changes.
The Government wants to charge staggered, or progressive fees, with the sums charged dependent on the size of the estate. While the proposed fees for estates worth up to £50,000 will be nil, the fees for the next tier - estates valued between £50,000 and £300,000 - will double from £150 to £300.
Estates that are between £300,000 and £500,000 in value will be subject to a fee of £1,000 while for those wishing to represent estates of £2 million or above, the proposed fee for a Grant of Representation will be £20,000.
North West Law firm Kirwans argues these changes could be potentially disastrous for farmers set to inherit an estate from a parent or relative.
John-Paul Dennis, Partner and Head of Private Client explains: “Farming families are likely to be unduly affected because valuations attached to woodland and infrastructure, as well as the farm house itself can often mean that a farm is valued as above two million pounds for inheritance tax purposes, even if the day-to-day farm itself is at subsistence level. This means that the family inheriting the estate will have to find the money for these enormous fees, as well as, in many cases, pay inheritance tax.
“In many cases, this will mean those seeking to administer agricultural estates will need to borrow against their own assets, not least because as bridging loans to cover inheritance tax are no longer widely available, it stands to reason that the banks may not be willing to make provisions for those needing to pay Grant of Probate fees. It has the potential to be financially catastrophic for this sector.”
Kirwans also raises concerns that many people alarmed about paying Grant of Probate fees may be tempted to seek cheaper, unregulated legal advice. Mr Dennis continues: “Because the fees will be prohibitive for many, we worry that many people will be tempted to cut corners rather than seek proper legal advice.
“As solicitors, we are officers of the Court and owe an overriding duty to the state to disclose any attempts to avoid paying Inheritance Tax. Unregulated will writers and estate administrators have no such legal duties and will often charge fees that at first glance seem more appealing.
“However, with these unregulated schemes comes increased risk. They leave consumers with very little recourse in the event of anything untoward happening such as being considerably overcharged because of hidden fees, or if an estate is administered incorrectly – which are both, frankly, pretty likely scenarios in these cases.
“And of course, ironically, any increase in unregulated schemes is likely to actually lead to a reduction in receipts for Inheritance Tax for HMRC, the very opposite of what they’re trying to achieve.”
Another concern raised by the law firm is that these changes could also lead to pressure being put on those leaving behind an estate to transfer a property before death.
Mr Dennis adds: “When an estate is worth more than £325,000 and falls into the 40% Inheritance Tax bracket, as so many farming estates do, there is already a considerable financial imperative to transfer assets at least seven years before death, and that’s before we even begin to consider the issue of care home fees.
“These new rules may result in increased pressure from family members to transfer property many years before they expect to die, an act which would leave them extremely vulnerable financially in the final years of life, as well as, of course, meaning that the government may not be able to use the estates of older people to subsidise fees for things like residential homes, something that is certainly not in the interest of the state!”
One of the most frustrating things about the proposed changes says Mr Dennis is that it is so unnecessary. He explains: “The Probate Registry is one of the most efficient parts of the Court system and does not cost the tax payer a great deal of money.
“In fact, prior disclosures by the Government show that the registry, if anything, makes a modest surplus based on its current charges, and similar organisations such as the Office of the Public Guardian and Court of Protection have been tasked to be cost neutral, hence our bewilderment at the huge spike in proposed fees.
“Is it right that the Probate fee should be linked to the value of the estate? Other Court of Protection and Office of the Public Guardianship fees are not, although they do have remissions at the lower end, but issuing a Grant of Representation or a Grant of Probate is a largely administrative matter. Of course, it is certainly skilled and involves a district registrar to adopt a legal mind over the paperwork submitted; but it is ultimately administrative and something that the Probate Registry already does very well.
“There is no administrative or financial imperative to make these changes so it is hard to consider it as anything other than a very clumsy attempt to funnel money into government coffers. However the results, as well as possibly pushing families over the UK into temporary or perhaps even long-term financial hardship, could well be to deter families from administering estates in the proper way, and thus actually reduce payment of Inheritance Tax.
“It really is a masterclass in the perils of unintended consequences and false economies, and we urge the government to reconsider.”
