A little known scheme that exempts members of the armed forces and the emergency services from being subject to Inheritance Tax (IHT) if they die in the line of duty has been extended to NHS workers and front line staff who die as a result of coronavirus in the line of duty.
This extension was made following a suggestion to the government by a tax advisor last week and was put in place within a few days, meaning that thousands of people may not how have to pay IHT of 40%.
When is IHT payable?
IHT is payable on estates valued at over the Nil Rate Band, currently £325,000 and rising by CPI from 2021/22 tax year. This could raise to £500,000 if the Residence Nil Rate Band of £175,000 is added (if the estate qualifies and your estate includes your main residence and is left to your direct descendants). This is doubled if you have inherited your spouse’s or civil partner’s Nil Rate Band. This means that the scheme is only likely to benefit more senior members of staff, older workers who have built up assets over time or those who might have inherited wealth.
Who is exempt from IHT under the scheme?
Prior to the government’s action this week, the exemption was available to the armed forces and emergency services. This includes the police, fire service, ambulance service, paramedic service and other rescue services, such as the coastguards when they die in the line of duty responding to emergencies. Humanitarian aid workers assisting the government, charities and international organisations are also included. Paid workers and volunteers are included.
The scheme new includes all NHS staff and frontline workers who die because of contracting coronavirus whilst at work. This includes the thousands of doctors, nurses and other people who returned to work recently after retirement to help the NHS battle coronavirus.
How is the IHT exemption applied?
Very few people are aware of the existing exemption as it has not been widely publicised, which means that families of those who have died may still be paying 40% IHT when they should not be.
To benefit from the exemption, the cause of death must be reported correctly on the death certificate. Executors must manually apply for the exemption, but it can be done retrospectively as there is no deadline, and any relevant IHT already paid should be refunded.
If you are one of those sadly bereaved by the death of a loved one who worked for the NHS, was a frontline worker or was a member of the armed forces or emergency services and you wish to find out if their estate is exempt from IHT, or need help in applying for the exemption, contact us.
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Steve Worsfold
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