Private Lives - Changes in probate and Inheritance Tax


03 April 2019

While many estates can be dealt with relatively smoothly and simply, the process of dealing with probate can be complicated and involved, exposing the personal representatives of the deceased to personal liability.

The UK Office of Tax Simplification (OTS) published the first stage of its review of the Inheritance Tax (IHT) system at the end of 2018. It has revealed that there are significant issues that the executors and administrators face, even purely on the administrative side of things, let alone the tax itself. The report found that the vast majority who have to deal with the system do not actually have any liability to the tax at all, and the detail required is disproportionate in those instances. Where there is tax to pay then there are potential cash problems as the tax must be paid before the Grant of Probate (Grant) can be issued, and yet no funds can be obtained to pay the tax without issue of the Grant.

The report makes several recommendations to make matters simpler and easier: 

  • shorter and simpler forms and guidance
  • standardised requirements from banks and other financial institutions 
  • for access to information and funds; and 
  • development of the online system rather than the burdensome paper 
  • forms as is currently required.

Unfortunately, while the OTS recommends simplifying matters, the tax law itself becomes ever more complex, for example with the recent introduction of the residence nil rate band which is complicated and is applicable in different way and in different circumstances to the normal logic of the IHT regime.

As Private Lives goes to press, the added complication of the potential increase in court fees for the application for probate is also working its way through Parliament and may already be coming into force. It is difficult to say at this stage what the wider impact will be, but it is possible under the proposed system that some estates will be liable to a fee increasing from £155 to as much as £6,000. 

The proposals have received wide-ranging criticism from STEP, The Law Society and other bodies. There are concerns (denied by the Ministry of Justice) that it is being dealt with more as a tax on estates, rather than an administrative fee for processing an application by the court service. In fact, it appears from a report by the Office for Budget Responsibility (OBR) that the Office of National Statistics (ONS) will classify them as a tax on capital rather than a fee for a service. It is possible that it will lead to unwise decisions by individuals in order to try to avoid the payment and obtain probate. This may, in itself, not be workable since many estates, where there are enough assets to warrant a high level of fee, will inevitably require a grant of probate since they are likely to, for example, hold property or shares. 

Given the uncertainty and complexity in the current environment of probate and estates, it is, of course, very important to make sure that your will is up-to-date and tax efficient. If you are acting as a personal representative of an estate, take professional legal advice to ensure that the estate administration is dealt with correctly and efficiently.

We will write about this further as it develops – please check the ‘Insights’ section of our website for up-to-date information at www.birketts.co.uk/insights.

The content of this article is for general information only. For further information please contact Richard Guy or a member of Birketts' Private Client Advisory Team.

This article is from the spring 2019 issue of Private Lives, our newsletter covering the key legal and tax issues that individuals face. To download the latest issue, please visit the newsletter section of our website. Law covered as at April 2019.

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