Imminent shake-up to death duties

Planned shake-ups to death duties have been subject to criticism in the media this week.

On the 24th of February, the Ministry of Justice (MOJ) confirmed its reforms of the current regime of fixed fees for non-contentious probate applications.

The change coming in in May will see the largest estates hit by the maximum fee of £20,000.

However the payment thresholds will rise from £5,000 to £50,000 lifting some 30,000 estates out of paying any fee.

The fees will be payable before the estate is distributed to heirs, and death duties have to be paid before probate is granted. The fees will be subject to inheritance tax and can only be paid once the tax bill is settled.

These proposals would raise around an additional £250 million a year for the courts. The changes echo the recent increases in fees the family and civil courts as well as the introduction of fees for employment tribunal claims. By increasing the fees above costs, the Ministry of Justice have sought to make the courts a revenue raiser for the government.

At present, a flat fee of between £150 and £250 applies for estates valued at more than £5,000. This figure is set to soar for larger estates. The flat-rate system will change to a tiered system linked to the value of the deceased’s estate. Estates valued at more than £300,000 will face a fee of £1,000. For estates above £500,000 it is £4,000; then £8,000 for estates worth £1m climbing to the top fees at £20,000 for estates worth more than £2m.

The fees have been criticized as a stealth tax which will hit people at a time when they will struggle to find upfront cash. Commentators have suggested that an increase in inheritance tax rates rather than probate fees would raise revenues in a fairer way.

The fee rise will follow closely on the heels of the introduction of the family home allowance in April, which will hand families a tax free allowance on the main residence. The residence nil-rate band will relieve inheritance tax on family homes worth up to £1m if left to lineal descendants.

Each individual currently has a maximum basic nil rate band amount of £325,000. Like this personal allowance, the family home allowance can be transferred to a surviving spouse or civil partner.