15 March 2017
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VFS INSIGHTS



 

Probate fees hike will leave a nasty sting for those inheriting UK estates over £500,000.


With probate fees set to increase by up to 9000 % from May, families with property in the UK should assess their liability now and take steps to protect those likely to be left with the bill. As UK house prices continue to rise, the impact of these changes will affect a growing number of people - not just the super wealthy.

If you are among those non-domiciled UK home owners still recovering from the shock of being drawn into the UK inheritance tax net, thanks to the new rules being introduced in the UK in April (see our earlier article), you need to brace yourselves - or indeed your children - for a further potential blow. From May 2017, the UK government will look to further increase its revenue from the bereaved, including those domiciled abroad, by replacing the current flat fee system for grants of probates with a tiered one based on estate values.

Probate is the legal process whereby a will is "proved" in a court and accepted as a valid public document. If you don't live in the UK and your will is therefore drawn up in the country in which you live, you might think this has nothing to do with you. If you have property or other UK-situs assets such as shares, insurance policies or bank deposits, you need to think again.

Although the law of the country in which you live will govern your succession, probate must be obtained in all jurisdictions where assets are held. If there are significant UK assets such as property, UK probate fees are almost unavoidable - which is why the changes coming into force later this year deserve close scrutiny.

The probate fees, paid by executors of wills and estates in England and Wales to the UK government, will rise from their current level of £215 to as much as £20,000 for estates worth more than £2 million, with legal costs to be paid on top. It is what happens to properties below the £2 million band that will worry many families. Under the new system, estates valued between £300,000 and £500,000 will need to pay probate fees of £1000; for those valued between £500,000 and £1 million, the charge rises to £4000; £1m-£1.6m, £8000; and £12,000 for those worth between £1.6 and £2m. While these figures do not pose as serious a threat to the value of estates as the new inheritance tax rules, they could make life very awkward for surviving family members. Not only must they pay the increased probate charges, they also face the considerable expense of having to engage a UK legal firm to complete the process for them. So, for a complex estate worth £2million, one could easily see the family members who have inherited it having to stump up for a bill of £40,000 when London legal fees are included.

The good news is that there are measures that can be put in place to either reduce the charge for beneficiaries or to help them pay it without diminishing the estate. For example, trusts can reduce the value of an estate for inheritance tax purposes, bringing it into a lower band of probate charges. Alternatively, a life insurance policy held in trust, which can be immediately accessed on death without the need for probate, could pay the probate bill.

If you are concerned about the impact of these fees either on your estate or on family members who may have to pay them, it is worth seeking financial advice in order to assess your liability.

 


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