A Grant of Representation is a court document which shows that an individual has the legal right to collect in assets and deal with a deceased person's estate. The question of whether an individual needs to apply for a Grant depends largely on the type of assets involved (e.g. property, large sums in bank accounts, shareholdings) and how the deceased's assets were legally held (sole ownership or with others).
Individuals entitled and required to obtain a Grant will therefore need to make an application for the correct type of Grant and will need to submit tax paperwork, even where there is no tax to pay. Where the Deceased's net assets are over the nil rate band (currently £325,000), there is potentially a 40% Inheritance Tax charge on sums over this threshold. There is a separate residence nil rate band (currently £150,000) available to use against the value of a property passing to direct descendants in certain circumstances. There are also various reliefs or exemptions which can be used to mitigate the charge and the possibility of utilising unused allowances from a deceased spouse. Where an estate is liable to pay Inheritance Tax, or includes certain types of assets, or where it is necessary to claim the residence nil rate band and/or transfer of unused allowances from a deceased spouse, it may well be necessary to complete more extensive tax paperwork to obtain the Grant.
Recently, the Government proposed to increase probate application fees, payable to the Probate Registry, from £250 (or £155 with a solicitor) to a sliding scale from £250 to £6,000, depending on the value of the estate. Due to Parliament being suspended on 9 September, the government proposal to increase probate fees has lapsed. This increase in fees would have meant that the bereaved would have had to foot this bill until such time as estate funds could be accessed. However, for the time being, Probate application fees remain at £250 (or £155 for applications made through solicitors).
Once an individual has obtained the Grant, and during the course of the administration of the estate, there are tax planning options available where the estate is subject to Inheritance Tax or Capital Gains Tax.
By way of example, a few options include:
- Appropriation – Appropriating assets to beneficiaries enables individual annual exemptions to be applied against any gains – meaning the Capital Gains Tax liability is either significantly reduced or removed altogether. As a default, without appropriating assets, only the estate's one annual exemption (currently £12,000) is able to be set off against the gain and the rest is subject to Capital Gains Tax.
- Deeds of Variation – Deeds of Variation allow beneficiaries to re-direct their gift under a Will to someone else (e.g. children, grandchildren or others) and the gift is treated as a gift from the deceased. The advantage of doing a Deed of Variation is where an individual does not wish to receive a gift (because it will increase their taxable estate or because they were already planning on gifting assets away), they can re-direct their gift under a Will so that the gift will be treated for Inheritance Tax purposes as a gift from the deceased, rather than the individual, meaning that it will not use up any part of the individual's Inheritance Tax nil rate band. As a default, any gift an individual makes during their lifetime may potentially use up part of their nil rate band if they do not survive for 7 years and can, in some circumstances, lead to additional Inheritance Tax being payable. This result can often be avoided by the use of Deeds of Variation.
- Business Property Relief/Agricultural Property Relief – Where a deceased owned assets which attract Business Property Relief or Agricultural Property Relief, it is possible to claim up to 100% relief from Inheritance Tax. The rules are complex, but it is important to ensure that these reliefs are correctly claimed where available.
When dealing with Administration of Estate matters, we consider all of the above options, together with various other issues to ensure the estate is dealt with correctly and in the most tax efficient manner.
If you need assistance with making a probate application or dealing with a whole administration of an estate, please feel free to contact one of our team members, who would be happy to assist you.
Written by Natascha Grantham