Probate fees: a new back-door property tax

Probate © Getty Images

We’ve been expecting the introduction of a new wealth tax in the UK for some time. And we have been expecting it to one way or another attempt to capture the huge rise in house prices in the southeast. This isn’t easy to do – rising council taxes always cause near riot conditions in the UK, the mansion tax idea didn’t exactly fly, stamp duty is an appalling tax and pretty much at its limit already and there isn’t much appetite (except from me…) for a capital gains tax on primary homes.

Kudos, then, to the clever clogs at the Treasury who have now come up with a new idea – one that most people won’t notice, that taxes money in limbo and that will end up raising a real amount of money (around £250m says the government – but if properly enforced I suspect it will be rather more). It is the rise in probate “fees”.

From 1 May probate fees – paid by the executors of wills and estates in England and Wales from the assets in those estates – will rise from its current level of £215 to as high as £20,000. Estates worth less than £50,000 will pay nothing. But from £50,000 the rate rises in bands until you hit £2m, after which all estates pay £20,000 (a rise of over 9,000%) despite the fact that – as everyone agrees – the cost of probate is much the same regardless of the size of the estate.

The fees will – just like inheritance tax – be payable before the estate is distributed to heirs (so some people will need to borrow to pay). This isn’t a good tax – much better would have been just to cut the inheritance-tax threshold or raise the rates (or do nothing).

But as most estates worth over £2m will be worth over £2m because they have houses in them, it does at least do something of what the government has long wanted to do: take a slice of the mostly unearned capital gains on UK residential property.

  • London Guy

    Unearned capital gains? Does anyone work 9-to-5 for capital gains?

  • mpurser

    A further tax on the Home Counties. Another reason why even more people will underdeclare for IHT.

    Wouldn’t mind so much if the service wasn’t so appalling. All the work is done by the executor, completing mind-numbingly repetitive HMRC forms, which have dozens of bugs in the PDF forms, so that numbers which should be replicated aren’t. Also, the staff at HMRC are incompetent and need to be constantly phoned up and reminded to issue forms and clearance letters which should be automatic.

    The whole system should be overhauled as the amount which the fees and IHT raises will rise exponentially as baby boomers, who have accumulated high liabilities through property ownership, pop their clogs.

  • A Frith

    I have done three now, and the common problem was the value of the houses that the deceased persons left.
    The value is entirely notional, yet you pay tax, or escape tax on a theoretical value. I know the local estate agent can give you a guide, but he or she is as likely to be wrong as not.
    One house sold for 75% of the valuation. One was unsold and eventually let out by the beneficiaries until the market improved – 5 years and counting now. One was moved into and occupied by the beneficiary.
    Including such a illiquid asset in a IHT assessment, then expecting tax to be paid quickly is entirely unreasonable/

  • A Frith

    I make no comment on the new charges for probate. They are obviously designed to catch people who are extremely rich, but cleverly avoid IHT. Fair enough.

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