Rising property prices can be good news for people selling a house, but in probate cases they can also offer a challenge.
The UK’s probate system has long been a subject of contention and concern, and now, with rising house values, this age-old system faces new and amplified challenges.
Since 2009, the inheritance tax nil-rate threshold of £325,000 has not changed and will remain the same until April 2026. However, average house values have risen from £159,000 to around £300,000, and today, average values in almost half the country (179 local authorities) are above the nil-rate inheritance tax threshold.
Not only are more estates reaching the inheritance tax threshold there are also more people inheriting. Since the turn of the century, property ownership and the ability to pass on property wealth have grown. The trend is set to continue. Currently, only 4% of deaths result in inheritance, but within ten years, one in eight people will inherit, according to the Institute for Fiscal Studies1.
All these factors mean more individuals could be liable for a large, unexpected tax bill, some in the region of £20,000 to £30,0002.
Lengthy delays
Probate can be a complex and lengthy procedure, especially in a climate of soaring property prices. One of the most prominent challenges of the probate system is the significant increase in the time it takes to process an estate, primarily due to rising house values. As property values continue to surge, the process of valuing and distributing assets has become considerably more complicated. Probate applications require an accurate valuation of all the assets, including real estate, which becomes more intricate when properties are worth significantly more.
The delay in obtaining a Grant of Probate from the Probate Registry not only prolongs the grieving process for beneficiaries but also creates practical difficulties. Beneficiaries may find themselves unable to access funds tied up in the estate, which could be crucial for financial security. This delay can also lead to uncertainty and disputes among beneficiaries, potentially straining family relationships.
Increased costs
The cost of obtaining probate is another significant challenge that has intensified with rising house values. The fees associated with probate applications are calculated based on the total value of the estate, including property. As property values increase, so do the associated fees. The current fee structure can be burdensome, particularly for those inheriting valuable properties.
The high costs can be a financial barrier for many, deterring them from applying for probate altogether or forcing them to seek alternative solutions, such as selling the property quickly to cover the probate fees. This pressure to sell assets quickly can sometimes result in properties being sold for less than their market value, leading to financial losses for beneficiaries.
Inefficiency
The UK’s probate system has faced criticism for its inefficiency even before the rise in house values. However, the current environment exacerbates these issues.
The valuation process is particularly problematic, given the lack of standardised guidelines for valuing properties. This inconsistency can lead to disputes, further prolonging the probate process. Additionally, the demand for probate services has surged due to rising house values, leading to increased workloads for probate professionals and government agencies.
Implications for beneficiaries
The delays, increased costs, and inefficiencies can lead to financial hardships and emotional distress for beneficiaries. They may have to wait for extended periods to access their inheritance, which can be particularly burdensome if they are dependent on those assets for their financial well-being.
Furthermore, the cost of obtaining probate can erode the value of the estate, potentially leaving beneficiaries with less than they anticipated. This may limit their financial options and affect their long-term financial security.
Property market impact
When beneficiaries are compelled to sell inherited properties quickly to cover probate costs, it can lead to an influx of properties on the market. This oversupply can drive down property prices in certain areas, potentially affecting the broader real estate market.
Furthermore, the probate process itself can cause delays in property transactions. The time it takes to clear probate can hinder the sale of properties and disrupt the fluidity of the property market. It can also lead to uncertainty for buyers and sellers, as they may have to wait longer for a transaction to complete.
Potential solutions
Recognising the challenges faced by the probate system in the UK due to rising house values, there are several potential solutions that could be considered:
- Proper financing – If beneficiaries are able to access proper financing to pay the fees arising, it allows for a more stress-free process where better financial decisions can be made.
- Reform probate fees – Adjusting the fee structure to make it more equitable and affordable for beneficiaries, regardless of the estate’s value, could alleviate some of the financial burden associated with probate.
- Streamline valuation – Implementing standardised guidelines for valuing properties within the probate system could expedite the process and reduce disputes.
- Online applications – Simplify and modernise the probate application process by enabling online submissions, making it more accessible and user-friendly.
- Simplify systems for small estates – Introduce a simplified probate process for smaller estates, with lower asset values, to reduce administrative burdens and costs for beneficiaries.
Facing the challenge
While the challenges are complex, addressing them can lead to a more accessible and equitable probate system, ensuring that beneficiaries receive their inheritances in a timely and cost-effective manner, even in a climate of rising house values. It is crucial to strike a balance between protecting the interests of beneficiaries and maintaining the integrity of the probate process.
