Inheritance tax UK: Ministry of Justice forced to address ‘unacceptable’ probate delays
Owen Jones says that inheritance should be taxed
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Inheritance Tax (IHT) is usually levied on the estate of someone who has died and is passing on their assets. The bill is paid where an estate is valued over £325,000 and it is usually charged at 40 percent. This process can be complex however and as such, families can utilise probate to get a grant of representation which confirms a legal authority to administer/manage the estate.
These grants are usually applied for by executors or administrators who will ensure the correct amount of IHT is paid and assets are passed down correctly. However, applications for probate have to be made to a registry which faced coronavirus related difficulties throughout 2020.
The Government details probate applications are taking up to eight weeks to process, with paper applications facing particularly long wait times. In late August, Marsha De Cordova, the Labour MP for Battersea, pushed the Government on what is being done about this.
Ms De Cordova said: “To ask the Secretary of State for Justice, what steps his Department has taken to tackle delays in the probate system?”
Today, Chris Philip, the Conservative MP for Croydon South, answered this question on behalf of the Ministry of Justice.
“Despite the unprecedented challenges faced by the probate service during the COVID-19 pandemic, and as a result of HMCTS increasing resources to meet demand, the average length of time taken for a grant of probate following receipt of the documents required has been maintained at between four to six weeks,” he said.
“HMCTS continues to invest in the improvement of the online Probate system which was developed as part of the wider HMCTS Reform Programme to further streamline ways of working resulting in a system that is simpler and easy to understand for applicants; is accessible; and more efficient and robust to run.
“The introduction of digital systems and bulk scanning has proved vital during the COVID-19 pandemic, allowing HMCTS staff to continue to process incoming applications and allowing Court users to access Probate services remotely.
“The Exela contract is managed in line with MOJ Policy for strategic contracts and is therefore subject to the highest levels of governance to ensure service delivery. More than half a million documents were scanned without error in 2020 and on the rare occasions where errors occur, the majority of documents are re-scanned within 24 hours of a request being made.”
Probate pressures ramped up over the summer as the pandemic pushed inheritance tax and stamp duty on property to record highs. With a higher number of people dying with coronavirus at the start of the year, the UK paid £571million in inheritance tax in July, the most ever paid in a single month.
Sarah Coles, a personal finance analyst at Hargreaves Lansdown, commented: “The pandemic has pushed inheritance tax and stamp duty on property purchases to record highs in July. The horrible rise in deaths from coronavirus at the beginning of this year meant an increase in IHT as those estates finally made their way through probate. Meanwhile, the Treasury’s efforts to reinvigorate the property market after lockdown with a stamp duty holiday encouraged thousands of people to accelerate their house-buying plans, pushing stamp duty on property to record highs.
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“The record tax taken in July is likely to be a result of the horrible rise in deaths of people with Coronavirus earlier this year. There’s typically a long delay between when someone dies and when the tax is paid, which can take up to six months. It means that what we’re seeing now is a result of the tragically high death rate in early 2021.
“HMRC says it’s too early to say whether the higher death rate and higher tax take are linked, but given that the last peak in IHT was in October, six months after the first wave, we can see a possible link.
“Paying IHT comes at the worst possible time. Families are still reeling from bereavement when they have to go through the administrative nightmare of probate, and then work out how to pay the tax bill. The more you can plan for this tax in advance, the less pressure it will put on your family when the worst happens.
“You might, for example, give gifts during your lifetime. You have an annual gift allowance and can give gifts of any size, and as long as you live for seven years afterwards, they are counted as being out of your estate for IHT purposes. Alternatively, you could consider a whole of life policy written in trust, which will be paid outside of your estate and can be used to meet the cost of the tax.”
While the Government aims to tackle these probate issues, the Ministry of Justice (MOJ) faced harsh criticism for its plans to raise probate costs.
In July, the MOJ launched an open consultation, closing on September 23, which “proposes to align the fees for professional and non-professional applicants of probate into a single fee of £273.”
This fee, according to the MOJ: “reflected the costs to Her Majesty’s Courts and Tribunals Service (HMCTS) of providing the service and would not generate a profit for the Government.”
Specifically, the objectives of the proposals put forward are as follows:
- To remove the unjustified discrepancy between professional and non-professional applicants for probate. This would bring the fee structure into alignment with HM Treasury’s Managing Public Money, where all users should pay the same fee for the same service.
- To ensure that the fee recovers the cost to Her Majesty’s Courts and Tribunals Service (HMCTS) of delivering the service.
- To protect access to justice by ensuring that courts and tribunals are adequately resourced, while reducing the overall taxpayer subsidy for HMCTS.
The Law Society responded to these plans, which were condemned for adding additional stresses onto an already struggling system.
The company explained all users of probate would be hit as the current fees are £155 for professional users and £215 for non-professional users. Stephanie Boyce, the Law Society President, responded to the developments.
“The MoJ’s persistence of raising fees in the probate service is worrying, particularly when there are continued and significant delays to the probate service,” she said.
“With so many applications now online and the expansion of Court and Tribunal Service Centres to centralise administration, it is unclear why probate service overheads have increased to justify such a significant fee hike.
“It is no secret the probate service has faced delays for people applying for probate grants or letters of administration. In 2020, people had to wait 12 to 14 weeks on average to receive their grant.
“This is unacceptable, the service must be timely and allow executors to settle a loved one’s estate.
“Any increase in fees must be reflected in the service provided. The online service was specifically designed to streamline the process and the UK Government must get the system working efficiently before upping costs to both professional and non-professional users alike.”
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