This year there has been little in the Spring Budget by way of surprises for individuals with most of the announcements looking at the detail of policy, rather than actual policy change.
The pre-announced increases to the income tax personal allowance (to £11,500) and the capital gains annual exemption (to £11,300) comes into effect from 6 April 2017, as does the welcome increase in the ISA limit to £20,000 and the introduction of a Lifetime ISA, allowing those under 40 to save for a first property or retirement. The £1,000 tax-free allowances for trading and/or property income are also being introduced, aimed at those undertaking internet trading or letting through sites such as eBay and Airbnb.
The Government’s U-turn on its controversial decision to increase Class 4 NICs for the self-employed has been well-publicised. This has deflected some attention from the unexpected reduction in the dividend tax-free allowance from £5,000 to £2,000 with effect from April 2018.
The latter is likely to have the most significant impact on small company shareholders and those who rely on income from a non-ISA investment portfolio and there are likely to be further changes to the tax treatment of the self-employed next year.
And in other news…
Although the Budget was light on talking points for individuals, proposed changes to probate fees were announced pre-Budget in February. The changes, which are due to be implemented in May, have met with overwhelming opposition and there is no doubt they will have very far reaching implications for individuals.
Probate fees must be paid in full before a Grant of Probate can be obtained when someone dies and are paid in addition to inheritance tax. A Grant of Probate is evidence of the executors’ authority to collect the assets of the deceased person, so apart from a few exceptions (where assets such as jointly held bank accounts pass to the surviving joint owner, or there is a very small estate with no property), no monies or assets can be recovered before the probate fees are fully paid.
The Government has announced it will increase probate fees for all properties over £50,000 and the changes will be felt even more significantly for larger estates – effectively imposing a stealth tax on death.
Current probate fees are £155 for a solicitor-led application and £215 for a personal application. From May 2017, whilst estates worth less than £50,000 will pay no fee at all (the threshold is currently £5,000), estates worth more than £50,000 will pay fees starting at £300, increasing considerably to £20,000 for estates worth more than £2m.
The fees will have to be paid before probate can be obtained and unlike inheritance tax, there is no exemption where assets pass to the surviving spouse or civil partner.
Amongst those hardest hit will be people who, motivated by a variety of reasons, choose to hold their homes as ‘tenants in common’ and not ‘joint tenants’. In contrast to property held as ‘joint tenants’ (which passes automatically to the survivor on death), a deceased’s share of a property held as ‘tenants in common’ will pass under the terms of their will and a grant of probate will be required to effect the transfer.
To illustrate, a couple own an average-priced property in Harrogate worth £345,000 in equal shares. As things stand, the probate fee payable on first death would be £155 for a solicitor-led application. From May 2017, this fee will increase six-fold to £1,000.
Given these significant increases in probate fees it is more important than ever that individual’s assets are held in the most appropriate way to avoid unnecessary charges, although there is little doubt that most individuals undergoing probate will be hit by higher costs.
Update 22 April 2017: Following the announcement of the general election on 8 June 2017, the probate fee increase has been withdrawn for the time being as there was insufficient time for the formal Parliamentary approval process ahead of the election. We expect the issue to re-emerge if the Conservatives retain power following the election and we hope that the concerns outlined above, and raised by STEP and other professional bodies, will be given due consideration at that time.