When is a tax not a tax?

One answer to that question might be “when it’s a probate fee”. The government has announced a new regime for probate fees, linked to the value of estates, which will replace the current fixed fee from May this year. Instead of the current £215 (or £155 through a solicitor), executors will pay on a sliding scale, from zero up to a maximum of £20,000 for estates of more than £2m. Following a short consultation early last year – in which 810 out of 831 respondents disagreed with the proposed new fee structure – the Department of Justice took nearly a year to decide to go ahead anyway.

One of the advantages for the government in introducing such a “levy” (to use a neutral term) is that it will not form part of the Finance Bill. Instead it will be introduced as secondary legislation – indeed, the statutory instrument (bearing the rather amusing title “The Non-contentious Probate Fees Order 2017) was laid before Parliament on the day of the announcement. While the change will require approval by a resolution of both Houses of Parliament (unlike many statutory instruments, which simply come into effect unless Parliament “prays” against them), it is not subject to amendment as it would be, at least in theory, if included in a Bill.

A further advantage – this time for the Department of Justice – is that the levy will not go into the general pot of taxation. Rather than having to fight for a share along with other departments, Liz Truss will be able to use these funds to subsidise the court and tribunal system. Last year’s consultation document was clear (paras 27-29) that the current fee fully recovers the cost of probate and that the new fee will act as a cross-subsidy.

However, for other purposes the new levy may well be regarded as a tax. According to the Office of Budget Responsibility (OBR) in its Budget Economic and Fiscal Outlook (EFO), “the structure of the fees is such that Treasury expects the Office for National Statistics to classify them as a tax in the National Accounts” (para A.5). Presumably the element of cross-subsidy also plays into this treatment.

The levy also interacts closely with the tax system, and specifically with Inheritance Tax (IHT). Alongside the £300m forecast revenue from the levy, the OBR has reduced its forecast for IHT by £30m “to reflect the incentive for individuals with estates worth close to the thresholds in the new probate fee structure to reduce the value of their estates (through genuine or contrived means) to remain within a lower fee band”. OBR notes that this effect is expected to be relatively small, as there is already a significant incentive to avoid inheritance tax.

The proposals have been greeted with paroxysms of rage (“stealth death-tax”) in the right-wing press, and I would not wish to join in the criticism from that quarter. Nor would I argue for lower taxes on death: quite the reverse, as the current tax is easily mitigated by those who are rich enough to plan around it, and the recent relief for “main residence” is hard to justify as well as being overly complex.

But there has been cogent criticism of the new levy from sober commentators such as the ICAEW, both in their response to the announcement and their original submission to the consultation. They point to the lack of Parliamentary scrutiny, to the fact that revenue-raising is best left to the Treasury rather than to fee-levying departments, and to the additional complexity for executors of introducing a fee alongside IHT. They also have a number of other objections, which may look rather technical but essentially amount to: “look, this is a tax in all but name, and it’s a lousy tax”.

It’s also worth noting that this change is likely to make it impossible for many bereaved families to apply for probate themselves. The complexity involved – for example, working out the value of the estate for probate as well as for IHT purposes (not necessarily the same thing given IHT exemptions) – is likely to put it beyond the reach of amateurs.

Finally, one aspect of the proposals in the original consultation document has not been followed up in the government’s response: the promise of better technology, an online system and a “new Probate Service” due to come on stream by April 2017. Those of us who have been following the government’s plans to “Make Tax Digital” may wonder whether death, too, will now be digital.


[For further scrutiny of the Budget, see also: The dog that didn’t bark in the Budget.]

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