If it looks, sounds, feels and tastes like a tax, then sure enough it is a tax no matter what the Ministry of Justice wants to call it.
In its latest report, the Joint Committee on Statutory Instruments dealt a major blow to the planned increases in probate fees – an administrative levy payable for a formal release of an inheritance from the Crown to the executors. According to the Committee, it may not be possible to implement the policy by a statutory instrument because the lord chancellor is not permitted to impose a tax without the consent of parliament. And yes, the Committee has strong suspicions that this alleged “fee” is in fact a tax:
‘1.8 The Committee understands that, where a statute authorises the charging of a fee in respect of a service, the word “fee” has connotations of recovery of costs, direct or indirect, incurred in the provision of the service concerned or in the administration of the process, and that there must be express authority to charge a fee which exceeds the cost of the service – in this context, the cost of issuing a grant of probate in an individual case. The Committee acknowledges that section 180 of the 2014 Act provides that authority. Nonetheless it remains a power to prescribe a “fee”, a concept which is subject to inherent limitations about the relationship to the service for which it is charged – including (arguably) one of proportionality. The lord chancellor is not permitted to impose a tax.’
In other words, for something to be a fee, it must directly relate to the cost and extent of the service provided. The Ministry of Justice may legitimately recover the costs of the operation of their agents – in this case, the Probate Registry – but it cannot impose anything above that in order to raise funds for something else. It has been repeatedly pointed out by lawyers that the size of the estate bears no relation to the amount of work involved in processing the inheritance, essentially rendering the proposed ‘banded’ system (which would see the beneficiaries of estates worth over £2m paying £20,000) a raid on those who allegedly can afford it.
Yet the reality is that given the current house prices, many of those who will fall into the top bracket are ordinary taxpayers’ who have simply found themselves with homes in the right places, for whom £20,000 is far from a drop in the ocean. The ministry has since issued a clarification that for those unable to pay the new “fees” upfront there will be a procedure for accessing certain assets prior to the estate being released, specifically for the purpose of covering the payment. But many such estates are unlikely to have anything other than the house that can command that sort of value. This raises the prospect of it being necessary to take out a loan – perhaps with the property as collateral – which makes an already challenging period for the bereaved even more difficult.
According to the Ministry, the projected £300 million annual revenue is necessary for the upkeep of the courts and tribunals system and the proposed reforms are good way of raising this money from those who use them. Bizarre, then, that the previous flat-rate fee of £215 or £115 if an application is made through a solicitor (which according to the Committee, comfortably covered the cost of running the Probate Registry) is being scrapped in favour of a system where by the ministry’s own admission a small proportion of testators will be disproportionately targeted.
The government may well claim that the additional revenue raised from this tax being applied to estates worth millions of pounds is worth the risk of it falling on someone’s family home, perfectly ordinary and unremarkable when purchased in the 1960s. Except that as with inheritance tax, those types of estates are likely to be account for a significant share of the ones to be affected. Expensive advice on how to avoid paying this “fee” – for example through partitioning the estate and gifting it over time so that by the time the will is executed, the value of the inheritance falls into one of the lower brackets – has no doubt already been drawn up.
As a general rule, fees closely linked to the services being used are fair and proportionate ways for government departments to fund what they do – indeed, that seems to be the logic behind this move. The Ministry of Justice and the courts system it administers is a vital and necessary component of our democracy which deserves to be adequately funded. But this flawed attempt to squeeze extra revenue from something which we know is incredibly difficult to tax is not a good way to go about it. Not calling it a tax changes nothing.