The Cost of Dying

November 2018
Share this article:

Average wages have recently increased by more than the cost of living, good news for workers who may feel a little better off. But the cost of dying will escalate when probate fees increase significantly.

The Ministry of Justice announced these increases, which replace a flat fee of £215 (£155 if a solicitor applies) to be levied as a fixed fee based on the value of the estate (before inheritance tax is deducted) as follows:

 

Value of Estate Probate fee

Up to £50,000

Nil

£50,000-£300,000

£250

£300,000-£500,000

£750

£500,000-£1million

£2,500

£1million-£1.6million

£4,000

£1.6million to £2million

£5,000

Over £2million

£6,000

 

The proposed fees are lower than the original proposals, which would have seen some families paying £20,000 and were withdrawn by the Government, following widespread protest. The Government say it is necessary to raise these fees to pay for the court and tribunal service.

Solicitors see them as an unjustifiable tax which bears no relationship to the work required of the Government’s probate service. Many fear they will cause difficulties for bereaved families, who may not have the funds to pay the upfront fee, which is required before the assets of the estate can be accessed.

Unlike inheritance tax, which exempts assets to be transferred to a spouse or civil partner, estates under £325,000 and certain business assets from tax, the probate fee applies to all the assets owned by the deceased. It must be paid out of the beneficiaries’ or executor’s own funds, as funds in the estate cannot be released until a grant of probate is issued.

At present many solicitors applying for probate on behalf of an estate will pay the £155 fee on behalf of their client and then reclaim this. Solicitors may not feel able to advance these higher fees from their own funds, leaving some families having to borrow money to release assets from the estate. This could be problematic if the main asset is a property jointly owned, as tenants in common, with the deceased. It cannot be used as security for a loan, until legal title has been proved and without probate, neither the beneficiary or joint tenant have full legal title.

Solicitors fear that some families will put off applying for probate or decide it can wait until their own death. This is not recommended. If the property value increases following the first death, capital gains tax could become payable on the deceased’s share of the family home, as that share would no longer qualify for a main residence exemption. It also leaves a surviving spouse in the position of not being able to sell the house if they choose to downsize, go into care, nor able to access an equity release loan. Assets owned solely by the deceased cannot be accessed without probate. This could include ISAs, shares and bank accounts.

Younger bereaved spouses, without liquid funds, could find that the State Bereavement Support Payment of £2,500 (or £3,500 for those who receive Child Benefit or are entitled to it) designed to ease the financial impact of funeral expenses* is all swallowed up by these extra fees.

How to Prepare

Any life assurance policies to provide funds for the family should be placed in trust. That puts them outside of the estate, so they do not suffer inheritance tax, and can be accessed before probate is granted. If life policies have been in place for some time, it is worth checking they are adequate to meet the family’s needs and that the beneficiaries named in the trust are still relevant. A policy left in trust to a former partner or ex-spouse could cause complications. Beneficiaries can be changed at any time.

Similarly, private pension plans and employer sponsored death in service cover does not form part of the deceased’s estate, so updating nomination forms will enable the trustees of those schemes to pay out the funds to the appropriate people before probate is granted.

Where cash is available, ensuring that all adults in the family have some funds in their own or joint accounts will help ease the immediate financial impact of bereavement. Ideally this should be enough to cover the immediate funeral and probate costs and a few months outgoings as the probate process can take some time to complete.

Kay Ingram
Director of Public Policy, LEBC

Please remember, no news or research item is a recommendation or advice to buy. LEBC Group Ltd is not responsible for accuracy and may not share the author’s views. Tax rates and allowances may change in future. The Financial Conduct Authority does not regulate tax planning. 

* The cost of funerals now average £9,204, an increase of 122% over the last 15 years. Sun Life Cost of Dying Report 2018.

Share this article:
Back to News & Views
kangaroos-pensive