Inheritance Tax Simplification?


Dealing with the estate of someone who has died can be stressful, but it was generally not costly. 18 months ago, however, the government mooted the idea of increasing the fees in England and Wales - quite substantially. 

Stealth Tax 

Inevitably, this was met with headlines such as ‘stealth tax on the dead’, and so with the surprise general election, the Government decided to shelve the increase. Unfortunately, this was not to be permanent, and in the past couple of months, they have confirmed an increase in Probate fees from April.

Probate Fees

Under the existing rules, when someone dies there is a fee charged for the grant of probate of £215. If using a solicitor, the fee charged is £155. From April, the fees will increase – but not by as much as previously thought. The original suggestion would have seen the largest estates: over £2 million, facing a fee of £20,000. However, under the revised proposals, these estates will now pay £6,000, and whilst this is still a substantial increase over the current levels, it is not as bad as first expected. Families will need to be able to call upon this level of funds so that they can make the application and gain access to the deceased’s estate.  

Positive News

It’s not all bad news, though, as the value of the estate below which no fee is payable will rise from £5,000 to £50,000. This will lift a great number of estates out of paying any fee at all, reportedly 2,500.

Planning is essential

Unless you’re planning to die before the new fees come into place – which is unlikely to be anyone’s favoured option – there is little that can be done. Perhaps more people should consider gifting the larger probate to their children during their life, with the intention that this amount should be held for the future, if there is a concern that the amount will be an issue.

Further changes on the horizon for trusts

It’s likely that there are further changes ahead for Inheritance Tax (IHT) and trusts too, as the Office of Tax Simplification have completed the review of IHT. The Government have released the consultation on trusts and are looking to ensure that there is fiscal neutrality for such structures. The Government’s focus is clearly on offshore trusts and the fact that these can remove assets from the charge, but they also have their sights set on the use of trusts passing assets down the generations. Currently, individuals can settle assets into a trust, and if the value of these assets is less than £325,000, then there’s no immediate IHT charge. Once seven years have passed, these assets fall outside their estate, and then the exercise can be repeated. It is not clear what the Government are proposing instead of  this arrangement, but what they want to ensure is that it does afford anyone an unfair tax advantage.

Increasing tax volumes

With a greater number of estates now suffering IHT, and the tax take exceed £5 billion for the first time (an increase of 8% over the previous year), it is clear that families are not planning ahead sufficiently to pass assets down to the next generations. This does not always mean using complex structures to reduce the IHT burden on your family – there are a number of exemptions and investments that can be used to reduce the burden. As always, the most important thing is to start planning as early as possible.

Get in touch if you have any questions about how to plan for your future

contact me