In Tax Hacks, our columnist Mike Warburton – previously a tax director with accountants Grant Thornton – brings you his best tax-saving tips
Any loss of life through the Covid-19 epidemic is heart-breaking for the families and friends of victims of this dreadful disease. It is a particular tragedy for those in the NHS, and in the emergency services, who become infected while helping to save others.
It may seem insensitive, but they and their families should be aware of a tax saving that may apply in these circumstance: a full exemption from inheritance tax.
You may think that not many nurses and junior doctors are likely to benefit from this but please read on. I believe this could be of benefit to far more people than you might first imagine and it is difficult to think of a group of people more deserving of any tax relief offered by the state.
‘IHT exemption lasts a lifetime’
Last week, Money reporter Harry Brennan explained how NHS and other emergency workers can qualify for this tax exemption. He made particular reference to older members of staff, including those returning to help the NHS. It can apply where the disease or injury was contracted when responding to emergency circumstances, including when working in a hospital. The list of those who can qualify is helpfully set out by HMRC with some qualifying conditions.
This relief is, however, not widely known about nor fully understood. For example, HMRC has confirmed that it can be extended to employees of publicly-funded care homes and home care or those employed by a charity providing services in response to the crisis.
It will not just apply to those who contract the disease and die following the infection. The harsh reality is that many who survive the initial infection will experience long-term damage to their internal organs. Some may suffer these effects for many years but ultimately have their lives shortened as a consequence. When they die their executors may not realise that they could still qualify for a complete exemption from inheritance tax.
The legislation can apply where their death was hastened or aggravated by the disease contracted at an earlier time. There is no limit on how long after contracting the decease the death occurs. By then they may have successfully accumulated sufficient wealth to draw them into the inheritance tax net – which remains £325,000 per person with an extra allowance when passing on a home to family.
Wounds from World War Two meant no death tax was due twenty years later
This exemption for emergency services personnel was introduced in 2014 but it has existed for the armed forces since 1975 when inheritance tax was originally introduced as “capital transfer tax”, and even earlier in the form of estate duty.
It is because of this that we have experience of how the relief works in practice. The 4th duke of Westminster died of cancer in 1967.
On his death certificate the doctor noted that a war wound from 1944 had aggravated the septicaemia which caused his death. The Inland Revenue, as HMRC was known until 2005, challenged a claim by his executors but lost in the subsequent court case and tax relief was granted.
Ten years ago I remember pursuing a similar claim for repayment of IHT. It involved a tragic case of a young naval air gunner who became ill during the first Gulf war in 1990 as a consequence of taking tablets prescribed to all the armed forces as protection against anticipated nerve gas attacks.
The pills unfortunately damaged his kidneys. He was given a kidney transplant, but the transplant eventually failed and he died in 2006. By that time he had become a wealthy bachelor and his executors duly paid inheritance tax of £53,000. His father subsequently came to see me following a Daily Telegraph article in which I mentioned the above exemption. I agreed to help him claim a repayment but I first had to deal with a rather bureaucratic branch of the Ministry of Defence to obtain a certificate.
It took over a year but we got there in the end. To help other veterans his family kindly agreed to allow the Sunday Telegraph to publish their story which you can still read here.
In his article, Harry mentioned the importance of ensuring that the cause of death is shown on the death certificate. That is certainly the case, but what about the circumstances I have highlighted where death may have occurred many years later?
Fortunately, obtaining relief for the emergency services does not require dealing with the MoD, but there is still a requirement for the executors to demonstrate the link between the earlier infection and the death, as explained by HMRC.
Whether you are a front line NHS worker, a paramedic or qualify under one of the other headings, and contract the virus on duty, please make sure that this is well documented and that you keep a copy.
As the HMRC instructions say: “Where the death occurs sometime after the incident, including many years after the incident, the evidence will need to be more substantial to show that the deceased was an emergency responder who was responding to emergency circumstances and that the death was a result of those actions.”
While there is no time limit between catching the disease and death, there is a time limit of just four years after the IHT has been paid to make a reclaim where the executors subsequently realise than the exemption should have applied.
When I challenged HMRC on this they said that such a mistake was unlikely, but I disagree. After all, the family I dealt with ten years ago (when the time limit was still six years) would not have reclaimed their £53,000 had the Daily Telegraph article not highlighted the opportunity.
I fear today’s NHS staff (and in particular, care workers) and their families do not know about it.