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How safe are my shares? The new probate regime

Shared from Tax Insider: How safe are my shares? The new probate regime
By Tony Granger, July 2019
Tony Granger examines the new probate regime expected to become law in 2019 following much debate and criticism. 

At the time of writing, a new probate regime is expected to be introduced shortly. The original timetable date was 1 April 2019. The proposed legislation is in The Draft Non-Contentious Probate (Fees) Order 2018. 

The government is set to charge probate fees based on the gross value of an individual’s estate on death. 

Higher fees
For some, this will result in a massive increase in fees, from the current £155 fee, to £6,000. This is on top of any inheritance tax (IHT) that is payable.

The government proposes to change the current probate fee structure from a flat rate fee to one based on the value of the estate. Usually, to obtain probate, the person dealing with the estate must first submit an IHT account to HMRC. The new probate fees will be based on gross estate assets, such as company shares.

The current probate fees are £215 for a personal application and £155 for a solicitor’s application, regardless of the size of the estate (in addition, those dealing with deceased estates will charge their professional executor’s fees – generally ranging from 1% to 5% of the estate value). 

The latest position is that probate fees will be on a sliding scale as follows:

 

Value of estate before IHT

New fee

Up to £50,000

£0

£50,000 - £300,000

£250

£300,000 - £500,000

£750

£500,000 - £1 million

£2,500

£1 million - £1.6 million

£4,000

£1.6 million - £2 million

£5,000

£2 million +

£6,000

 

These rates apply to England and Wales. The government estimates that the revised proposals would generate over £145 million in additional fee income in 2019/20, rising each subsequent year in line with increases in estate values.

Fees would be set at no more than 0.5% of estate value. By comparison, IHT on death is generally based on a 40% rate on any assets valued over the IHT-free threshold.

Calculating the value of an estate for probate and IHT
All the assets you owned immediately before death comprise your estate. This includes personal possessions, money in the bank, properties, pension policies, shares and investments, vehicles and jewellery; including also money owed to the deceased, trust interests, and foreign assets. Estate liabilities include debts such as mortgages, loans, credit cards, and funeral costs.

The assets added together give the gross estate value. Liabilities are deducted to give the net estate value.

The gross estate figure comprises the open market value of the deceased's assets as at the date they died (the 'probate value'), with the net figure being the value of the estate once any debts due at the date of death, including the funeral expenses, have been deducted. The probate value is therefore the gross estate value before liabilities and reliefs are taken off. 

The IHT taxable value is after liabilities and exemptions are accounted for. This also includes the nil rate band at £325,000 and (if applicable) any spouse or civil partner exemption.

Company shares and AIM qualifying shares
Your company shares and certain AIM (alternative investment market) shares could qualify for IHT business property relief at up to 100%. In those circumstances, no IHT charge is drawn on qualifying shares. 

However, the fair market value of your shares the day before you died can attract higher probate fees under the proposed new regime, as the gross estate is the value for probate purposes (not the net estate value as for IHT). This is akin to a small IHT charge on previously tax-free assets.

Practical Tip:
Check for possible IHT and estate reducing measures to minimise the effect of all fees and taxes, and include life assurance in trust to fund for estate expenses. 
Tony Granger examines the new probate regime expected to become law in 2019 following much debate and criticism. 

At the time of writing, a new probate regime is expected to be introduced shortly. The original timetable date was 1 April 2019. The proposed legislation is in The Draft Non-Contentious Probate (Fees) Order 2018. 

The government is set to charge probate fees based on the gross value of an individual’s estate on death. 

Higher fees
For some, this will result in a massive increase in fees, from the current £155 fee, to £6,000. This is on top of any inheritance tax (IHT) that is payable.

The government proposes to change the current probate fee structure from a flat rate fee to one based on the value of the estate. Usually, to obtain probate, the person dealing with the estate must first submit an IHT account to HMRC. The
... Shared from Tax Insider: How safe are my shares? The new probate regime
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