Charities are facing a "stealth tax" that could cost them £10m a year in lost legacy income if new government proposals to reform probate fees come into force, experts have warned.
Lucy Frazer, the justice minister, yesterday announced that the government was revising its previous proposals for reforming probate fees and would be pushing ahead with removing the existing flat rate of £215.
Instead, probate fee bands would be brought in, she said, with estates of more than £50,000 paying between £250 and £6,000, with the maximum amount reserved for estates worth more than £2m.
All estates valued at less than £50,000 would be exempt from probate fees, said Frazer, and all fees would be less than 0.5 per cent of the total value of the estate.
Previous proposals to reform probate fees, which were abandoned last year because of the snap general election, had suggested fees of between £300 and £20,000.
But the Institute of Legacy Management said today the new system could cause charities to lose out on as much as £10m a year in legacy income.
Matthew Lagden, chief executive of the ILM, said he was "deeply concerned" by the proposals, which would "significantly reduce income for charities reliant on legacy gifts to the tune of £10m a year", despite increasing demand on charities’ services.
"The government’s own impact assessment acknowledges that the current fees cover the average costs of making a grant of probate, so we are clear that this is a stealth tax, which will be borne in part by charities," he said.
"We are also very concerned that the government’s impact assessment dismisses the costs to the charity sector as ‘not expected to be substantial’, when the £10m lost to this tax would fund vital services across England and Wales."
Lagden said the ILM supported the introduction of a rebate or exemption from the increased fees for charitable estates.
"This would cost the government relatively little and would improve the attractiveness of this vital form of giving," he said.
Rob Cope, director of Remember A Charity, said his organisation would be urging the government to offer a reduction in probate fees for estates that included charitable gifts.
"The new probate structure will see charitable wills costing, in some cases, thousands of pounds more than they do currently, and our concern is that this could deter people from leaving donations in their wills," said Cope.
Nicola Evans, charities counsel at the law firm Bircham Dyson Bell, said: "The government should be transparent about what it is trying to do here, which is to replace the current fixed fee with a new probate tax designed to subsidise other parts of the courts system. Tinkering with the figures does not change that."
Evans said the probate fee structure proposed by the government was the same as it was in 2017, when a parliamentary committee had raised serious concerns because it believed the changes to probate were an attempt to raise taxation without parliament’s consent.
"If passed, the new tax will side-step the long-established exemptions and reliefs of the inheritance tax regime, including the charity exemption," said Evans.
Caron Bradshaw, chief executive of the Charity Finance Group, said the CFG had pressed the government for a charitable exemption, but in failing to include it in the new reforms the government had "missed an opportunity to support charity".
It said 80 per cent of estates would pay only £750 or less a year, with 25,000 estates taken out of probate fees altogether each year.