SME business owners could be hit by ‘death tax’ hike

News Article

Hefty increases in fees payable to the Probate Registry (‘probate fees’), which have widely been condemned as a ‘tax on death’, are set to place a significant additional financial burden on small business owners and their families.

Despite opposition to the plans, the Government has announced that the new fees will be rushed in and are due to take effect in just a few weeks’ time, from May 2017.

Currently, a £215 flat fee applies if probate is applied for by friends or family, or £155 if a solicitor completes the process.

The new system will apply a sliding scale based on the value of an estate. Estates below £50,000 will no longer pay probate fees, but estates worth between £50,000 and £300,000 will be required to pay £300, estates worth between £300,000 and £500,000 will be required to pay £1,000 and estates worth between £500,000 and £1 million will be required to pay £4,000 .

Estates worth more than £1million but less than £1.6million will face fees of £8,000, those worth between £1.6 million and £2 million will face fees of £12,000 and those totalling more than £2million will face a £20,000 probate fee – the latter of which represents a 9,000 per cent increase.

Lee McClellan, a partner and Wills and Probate specialist with Palmers warned that the amendment to the rules could be catastrophic for some small business owners – commenting that it was in some ways worse than inheritance tax, the existing tax on death.

“If you were to take a financial snapshot of the worth of many small business owners, you might assume that they are extremely wealthy,” said Lee. “However, although on paper they may be asset-rich, many small business owners are not necessarily ‘cash rich’, with most of their wealth tied up in land, buildings, equipment or products.

“Whilst beneficiaries may inherit assets from a business that are technically worth significant sums, there may not be the money available upfront to meet these significantly higher fees.

It is also worth noting that the relevant value of the estate for the purpose of the new probate fees is the value before the deduction of any available reliefs – e.g. business relief, spouse relief, charitable relief etc. – which might be available for inheritance tax purposes, so the value of the business assets will affect the probate fee payable even where they will not affect the amount of inheritance tax payable.

“Whilst this sudden change to probate fees might leave many small business owners fearful of the financial impact upon their families, it is important that they sit down and consider their options carefully rather than taking any immediate radical action.

“By revisiting their current succession and inheritance plans it may be possible to re-structure the business and its assets in a way that allows them to maintain control of the business, while minimising any liabilities and probate fees.”

For advice on all aspects of probate and estate planning, please contact us.