Autumn Statement 2014 - Further relief for members of emergency services

Inheritance Tax ("IHT") is charged on the value of an individual's estate as at the date of their death. The first £325,000 is taxed at 0% (this is called the nil rate band) any balance over this is taxed at 40%. In addition to the nil rate band, there are a number of exemptions, allowances and reliefs that can be applied to reduce the amount of IHT further.

Ever since the reign of William and Mary, governments of all political persuasions have accepted that the estate of a member of the armed forces, who died as a result of injuries received in combat or disease contracted whilst on active service, should be exempt from IHT. This relief applies to those on active service or who later die from their injuries, and the injury or disease needs only to have contributed to death; it does not have to be the primary cause. That relief remains in place, and those of us who advise on the administration of the estates of deceased persons need to be careful to ensure that proper enquiries are made so that this valuable exemption is not overlooked. It is sometimes easy to forget that someone dying in their 90's may have sustained injuries in combat some 70 years ago, that may have contributed to their death.

The relief applies to combat in any theatre from the Second World War to the recent campaign in Afghanistan, and to members of any of the services. If it is felt that the death of someone was caused by or contributed to by injury received or disease contract while on active duty then a claim should be made to the Ministry of Defence. It will then be considered by medical experts who will advise on whether or not the claim is acceptable and issue a certificate, that will be given to HMRC to exempt the estate from IHT.

A related relief also available concerns medals and other decorations such as swords or silverware that have been awarded for valour or gallant conduct. These qualify as excluded property from IHT providing they have not been purchased by the deceased.

The Autumn Statement has announced that from 3 December 2014, the existing exemption from IHT will be extended to cover all decorations and medals awarded to the armed services or emergency services personnel, and to awards made by the Crown or by another country or territory outside the UK for achievements and service in public life. Just how valuable an exemption this will prove to be is dependent on the value of the medals or award themselves. It is understandable that a Victoria Cross or George Cross can command considerable prices. Interest in the First World War has also caused the prices of medals to rise but undoubtedly the prices of medals associated with famous figures or awarded for acts of special bravery command a considerable premium, so this proposal may prove to be a very welcome saving to some estates.

In addition, following consultation since the 2014 Budget, the Autumn Statement has announced that the existing IHT exemption for members of the armed forces whose death is caused or hastened by injury on active service will be extended to cover members of the emergency services and humanitarian aid workers responding to emergency circumstances. This will take effect for deaths on or after 19 March 2014.

These extensions are to be welcomed, although in reality the costs to the Exchequer in IHT lost are not expected to be large. As we have seen in Afghanistan the ages of our personnel killed in the conflict are late teens or early twenties, so they are unlikely to have built up an estate that was subject to IHT in the first place. It will fall to families and their advisers to keep in mind the relief. For example, the death of a former policeman injured and invalided out of the force twenty years ago may have been caused by the injury suffered on duty.

As far as awards made by the Crown, it should be noted that senior orders of chivalry awarded by the Crown often require the surrender of the regalia back to the Crown on the recipients' death. In that instance no IHT would be payable in any event.

Given the number of exemptions, allowances and reliefs that can be applied to reduce the amount of IHT, it is always prudent to seek specialist advice to help advise on ways to eliminate uncertainties over the administration of estates and on ways to maximise the value to pass on to your beneficiaries.

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