New Inheritance Tax and Probate Fee law changes coming in this Spring means many stand to lose out thousands of pounds, a Dorset solicitor has warned.
Blanchards Bailey Principal Jerome Dodge says people should look at restructuring their assets following new Probate Fees set to be introduced. From May people with an estate valued at £500,000 to £1m will have to pay an astonishing rise from £155 to £4,000.
The new Inheritance Tax rules, due to come in on April 6, also sees people at risk of squandering large sums of money unless they amend their Wills to take account of the new changes, Jerome has revealed. The reality that many Wills were drafted before the new allowance means some people will not benefit especially as it includes a host of “strange anomalies”, according to the lawyer.
The government’s new rule means there is a potential to extend the Inheritance Tax allowance by using what is known as the residence nil rate band (RNRB) from the current tax-free threshold of £325,000 to £425,000 for an individual, and from £650,000 to £850,000 for a married couple and those in a civil partnership.
The 2015 budget introduced the new provision allowing individuals and married couples to pass on their main home with a smaller tax liability. This will be worth £100,000 in 2017-18, £125,000 in 2018-19, £150,000 in 2019-20, and £175,000 in 2020-21.
However, complications exist with the extra allowance only being available where a residence is inherited by a “lineal” descendant, such as a child, step-child, adopted child or foster child of the deceased person and their own lineal descendants.
In terms of trusts, the new rules are also complex. For example, if an estate is left to a grandchild on them reaching age 18, the estate will qualify for the extra allowance. However, if it is left to a grandchild on them reaching age 19 or older, the extra allowance will be lost – which Jerome says is how many Wills are set up.
“It is essential for people who think they will benefit from the extra allowance to review their Wills immediately as otherwise they may face losing out,” Jerome, who is also Blanchards Bailey Head of Department for Wills and Estate Planning, said.
“While the new allowance could save people significant sums of money, the fact the legislation is full of strange anomalies combined with the reality most Wills were drafted before the changes were introduced may mean they will not benefit unless their Wills are updated.
“In some cases it will be possible for the Will to be varied after a person’s death to ensure the estate qualifies for the allowance but even if it can then this will almost certainly result in more expense and uncertainty than amending it now.”
The government will also be introducing “downsizing” provisions with the intention to prevent loss of the RNRB where someone sells their house or downsizes before their death. The new legislation also means that where the first of a married couple dies to leave their estate to their spouse, the inheritance nil rate band can effectively be “passed on” to the surviving spouse.
Not everyone, though, will qualify for the new allowance with it not available to those without children or to estates worth more than £2m.
“It’s a common perception that the Inheritance Tax allowance is automatically increased for everyone – this is not the case and it can easily be lost without careful planning,” Jerome added. “There are ways to avoid these problems, but we would strongly recommend any individual who has assets of more than £325,000, or any couple who have assets of more than £650,000, to review their Wills as soon as possible.”
The government has also confirmed new probate legislation where there will be large rises in fees payable after death, affecting millions of people from May this year.
Currently, probate fees are fixed at either £155 through a solicitor (or £215 without) regardless of your estate’s worth, but this is set to change to a banded approach, proportionate to the value of the estate.
However, not all properties need to go through probate. The value of the estate below which no fee is payable rises from £5,000 to £50,000, meaning that a lot more people will not have to pay fees.
But The Ministry of Justice’s announcement means anyone with an estate worth more than £50,000 (up to £300,000) will now have to pay £300 instead of the previous fixed fee, and then the fees dramatically rise dependent on the value of the estate.
People with an estate worth between £500,000 to £1m will soon have to pay £4,000 - a whopping increase of over 2,400 per cent. Those with estates worth between £1m and £1.6m will soon have to pay £8,000 fees, while anyone with estates from £1.6m to £2m will soon pay £12,000. Fees rise to a maximum of £20,000 for estates worth more than £2m.
“The changes to probate fees mean there is a considerable jump for those with an estate valued at £500,000 or more,” Jerome said. “But there are ways we can structure people’s assets to reduce the fees as it is only assets that pass through Wills or the intestacy provisions that are subject to the fees. We can advise people on the best way forward to reduce these fees.”
Contact Blanchards Bailey on 01258 483616 for more information or visit www.blanchardsbailey.co.uk
Pictured: Jerome Dodge, Blanchards Bailey Principal and Head of Private Client- Wills and Estate Planning
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