A record £4.6 billion in Inheritance Tax was paid in 2015/16. Up 31% from £3.8 billion the year before. The cause of this increase is easily identifiable – increasing house prices mean more estates are now liable to the tax.
The Government reacted by introducing the Main Residence Nil Rate Band. Eventually this will allow on up to £175,000 of property to be passed on tax free in addition to the standard £325,000 nil rate band. As with the standard IHT nil rate band of £325,000, a married couple can use both allowances. This means up to £1 million can be passed on free of IHT to your children and grandchildren.
At the same time as the government was putting in place this new allowance, they were quietly consulting on an increase to probate fees which would see larger estates pay significantly more – a move confirmed in the last few days.
Under the current system, probate fees are a flat £215 or £155 if using a solicitor.
A Grant of Probate gives the people dealing with your estate (the administrators) the authority to deal with your assets. The administrators need to submit an inheritance tax form to HMRC and swear an oath at a solicitor’s office. Once they receive the grant, they can start the process of making payments to the beneficiaries of your Will.
From 1 May, it will be free for estates worth less than £50,000 but £20,000 for those worth more than £1m. The confirmed bandings are:
- £300 for estates worth more than £50,000 and up to £300,000
- £1,000 for estates worth more than £300,000 and up to £500,000
- £4,000 for estates worth more than £500,000 and up to £1m
- £8,000 for estates worth more than £1m and up to £1.6m
- £12,000 for estates worth more than £1.6m and up to £2m
- £20,000 for estates worth more than £2m
These fees will need to be paid upfront. Where the estate has cash available it this is relatively simple, but in cases where the estate has little cash but valuable property, the executors or beneficiaries will need to pay the fees themselves.
The new increase in probate fees means the people dealing with your estate after your death could be faced with a much bigger upfront bill.
One way to make sure they have access to cash to pay the IHT and probate fees is to take out a life assurance policy with the proceeds paid into a trust. You can set up a simple trust so the pay-out doesn’t form part of your estate. This means your loved ones will have a fund available to cover any expenses incurred after your death.
Director & Chartered Financial Planner, EQ Investors
» If you have any questions about the above, please do not hesitate to contact us.