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Markel Tax

14 May 2020

IHT – Emergency service personnel exempt from IHT

During these unprecedented times many key workers have sadly lost their lives. Under existing inheritance tax (IHT) legislation the estates of ‘emergency personnel’ who die on active service or who later die from an injury or disease contracted while on active service, may be exempt from IHT.

Not only do these rules apply to the death estate but the legislation is extended to any potentially exempt transfers (PETs) and chargeable lifetime transfers (CLTs) made within seven years of death as well as any qualifying interest in a possession trust of which the deceased was a life tenant.

Unfortunately, any lifetime tax paid on a CLT is not repaid to the estate.

Who does the exemption apply to?

The exmeption is available to an ‘emergency responder’ whose death occurs as a result of responding to ‘emergency circumstances’ and the death results from:

  • ‘….a disease contracted when that person was responding to emergency circumstances’ or

  • ‘a disease contracted at some previous time, the death being due to, or hastened by, the aggravation of that disease when the person was responding to emergency circumstance’

Who is an emergency responder?

An emergency responder includes, but is not limited to, a person employed to provide:

  • medical, ambulance or paramedic services,

  • police services,

  • persons involved in transporting medical equipment or medical personnel,

  • person involved in a charity in connection with the provision of humanitarian services.

The legislation covers volunteers as well as those who are employed. Interestingly, the exemption does not apply if you respond to a situation while off duty, unless you are a police officer.

The legislation does not appear to include non-medical care home workers which seems unfair given the current situation. A nurse may contract Covid-19 from looking after a vulnerable patient in a hospital, the community or in a care home and would be entitled to the exemption. However, a non-nurse carer who contracts Covid-19 in the same situation would not qualify for the exemption as they do not meet the definition of an emergency responder under the current legislation.

 What is an emergency circumstance?

According to the legislation, this not only means responding to the emergency situation at hand but also includes preparing to respond to an emergency situation and dealing with the immediate aftermath of the situation.

What action needs to be taken?

If an emergency service worker meets the conditions for the IHT exemption, then the personal representatives must claim this exemption as it does not apply automatically. Failure to make the claim could result in the deceased’s estate paying tax at 40%.

Evidence will be required to demonstrate that the emergency responder was responding to an emergency circumstance. Evidence can include a death certificate or a medical report which explains the cause of death and the emergency circumstance that the deceased was attending to.

Planning recommendations

Where the estate may have been transferred to a spouse, spousal exemption would have been available, therefore making the exemption obsolete.  However, with some careful post death planning, part or all of the estate can now be transferred to the children free of tax if this is what the family would rather happen. 
Those who are in the medical field could update/prepare wills containing a clause which states if the death qualifies under s 153a IHTA 1984 then the estate (or part thereof) is to be distributed to the children otherwise it transfers to the spouse.

Furthermore, if the estate is passed on to the children, this would mean the nil rate band and residence nil rate band could still be available to the surviving spouse on their subsequent death.
This exemption can also benefit unmarried couples where inheritance tax could otherwise become an issue, so availability is worth reviewing.

There may also be other planning recommendations available and we would need to consider the estate as a whole before providing any advice.

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Tagged IHT trust & estate planning COVID-19
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