New UK Probate Fees May Sting Family Businesses Hard
The additional income from UK probate fees will mainly come from family businesses, because the qualifying threshold will become £50,000 from April 2019.
A ‘grant of probate’ document is a legal instrument that authorizes an executor to administer the affairs of a deceased person according to their will. The government currently charges families £215 for the privilege (or £155 if they use a solicitor), provided, that is the value of the estate is over £5,000. The government is ‘pushing plans through’ to replace current UK probate fees with a service fee based on the value of the deceased estate.
Not Much Money to Share After the Funeral
Dr Neil Cummings of the London School of Economics says most of us die virtually penniless. He should know, because he analysed 60 million English death and probate records from 1892-2016. His main finding is 60% of people die leaving less than £5,000.
The Daily Mail says this is due to the surprising failure of most baby-boomer wealth to trickle down to their families. According to Dr Cummings the average cost of a funeral is over £4,000. He calculates his 60% of ‘penniless’ people as follows:
• In the 1890’s, 10% of estates incurred probate
• By the 1950’s, this had increased to 40%
• The threshold for probate was £100 in 1950
• By 1984 this had risen to £5,000 where it stayed
Nothing much has changed since then. If only 40% of estates are incurring probate, then the remaining 60% must be worth less than £5,000. This is an elegantly simple calculation with far-reaching consequences.
New UK Probate Fees Moving Up Market
The additional income from UK probate fees will therefore mainly come from family businesses, because the threshold will become £50,000 from April 2019. ‘The proposals will see estates worth £2m or more pay £6,000 in probate fees. This equates to a 3,770% increase on the current modest flat probate fee. However it is a reduction on the original plans, which would have seen a bill of £20,000 for the largest estates.’
Could This Be The Consequence of Rising Debt?
‘Perhaps mortgage and other debt can explain this,’ Dr Cummings’ report suggests. He comments ‘all changes in wealth inequality after 1950 are confined to the reshuffling of wealth within the top 30 per cent’. Therefore the increase in middle class home ownership comes at the cost of increasing mortgage and other debt.
The only notable exception has been among females, where the proportion of qualifying probates rose from under 40% to over 50% from 1892 through to 1992. Who would have thought a subject as ‘dull and dusty’ as probate tax could yield such interesting socio-economic information?
How the ‘Broad Middle Class’ Failed to Benefit from Wealth Reshuffling
The UK middle class emerged during the First Industrial Revolution. It flourished during Victorian times as businesspeople began to take on vested upper class interests.
The Telegraph defines current middle class incumbents as ‘The most gregarious and the second wealthiest of all the class groups. They work in traditional professions and socialise with a wide variety of people, and take part in a wide variety of cultural activities’. Why then are so many dying leaving a pittance?
Dr Cummings concludes “This paper shows that for Britain, it was not the rise of a broad ‘middle’ class which characterized the changes in the 20th century wealth distribution. It was a reshuffling of wealth away from the top one per cent to the rest of the top 20-30 per cent. The vast majority die with almost nothing.
He ends by commenting ‘This ‘missing’ middle class left the English social and political fabric vulnerable to the protest vote of many in 2016 to leave the EU. This followed the austerity induced by the financial crisis.’ The higher UK probate fees may make it even harder to adjust to this.
