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Section 154 of the Inheritance Tax Act 1984 (“IHTA”) provides an important but often forgotten Inheritance Tax (“IHT”) exemption for members of the armed services. Following the enactment of the Finance Act 2015, the exemption has been extended to cover other individuals who work in emergency situations. This note explains the key changes so that you can keep this valuable exemption in mind when discussing sensitive matters with your clients.

Section 154 IHTA

The legislation provides that the estate of a member of the armed forces is exempt from IHT if they die as a result of:

1. A wound inflicted, accident occurring or disease contracted whilst on active service; or

2. A disease contracted at some previous time, the death being due to or hastened by the aggravation of the disease whilst on active service.

While such clients’ estates continue to benefit, three key extensions have now been made to the exemption, as follows:

1. Emergency Services Personnel and Humanitarian Aid Workers

Section 153A extends the IHT exemption to the estate of an emergency responder if they die as a result of:

1. An injury sustained, accident occurring or disease contracted whilst responding to emergency circumstances; or

2. A disease contracted at some previous time, the death being due to or hastened by the aggravation of that disease whilst responding to emergency circumstances.

An emergency responder is defined as being either: (1) Emergency Services Personnel – defined as persons employed or engaged in providing fire services; medical, ambulance or paramedic services; services for police purposes; and services for the transportation of organs, blood, medical equipment or personnel; or (2) Humanitarian Aid Workers – defined as individuals employed by a government, international organisation or charity in connection with the provision of humanitarian assistance.

It must be noted that the exemption will only be available if the individual was responding to emergency circumstances. This would be the case if the emergency responder was:

1. Travelling anywhere for the purpose of dealing with emergency circumstances occurring at the destination;

2. Dealing with emergency circumstances;

3. Preparing to deal with emergency circumstances imminently; or

4. Dealing with the immediate aftermath of emergency circumstances.

Emergency circumstances include circumstances which are present or imminent and are likely to cause:

1. The death of a person or animal;

2. Serious injury or serious illness of a person or animal;

3. Serious harm to the environment or to any building or other property; or

4. Worsening of such an injury, illness or harm.

This change greatly increases the scope of clients whose estates may be exempt from IHT. For example, the estate of a doctor who is killed in a road accident when travelling to the scene of an explosion would now be exempt. It is important to note, however, that the exemption is only available where the client is acting in the course of his or her employment or voluntary work. Surprisingly, this means that off-duty doctors or paramedics stopping at the scene of an accident and rendering assistance will not be covered.

2. Armed Forces Personnel Responding to Emergency Circumstances

The exemption under section 154 has also been extended to apply to members of the armed forces and civilians subject to service discipline who die whilst not on active service but instead as a result of:

1. A wound inflicted, accident occurring or disease contracted whilst responding to emergency circumstances in the course of the individual’s duties as a member of the armed forces or as a civilian subject to service discipline; or

2. A disease contracted at some previous time, the death being due to or hastened by the aggravation of the disease whilst responding to emergency circumstances in the course of the individual’s duties as a member of the armed forces or as a civilian subject to service discipline.

An individual is deemed to be responding to emergency circumstances in the same situations as outlined above. As an example, the estates of members of the armed forces and nurses who die as a result of Ebola contracted whilst assisting with the crisis in Sierra Leone would now be exempt from IHT.

3. Constables and Service Personnel Targeted because of their Status

Section 155A has been introduced to exempt from IHT the estate of police constables and members of the armed forces who die as a result of:

1. An injury sustained or disease contracted in circumstances where they were deliberately targeted due to their status as a constable or as a member of the armed forces; or

2. A disease contracted at some previous time, the death being due to or hastened by the aggravation of the disease by an injury sustained or a disease contracted where they were being deliberately targeted due to their status as a constable or as a member of the armed forces.

This exemption applies whether or not the member of the armed forces or the constable is on or off duty. This compares unfavourably with the situation of the off-duty paramedic or doctor highlighted above. This exemption would cover the estates of soldiers in the British army who are killed in the UK whilst off duty because of their status as a member of the armed forces.

Again, however, the estates of certain individuals who you may think should be covered are not. For instance, a police officer killed whilst working undercover on surveillance and who was not deliberately targeted due to their status as a police officer would not benefit from the exemption.

Conclusion

The Finance Act 2015 has significantly widened the scope of the IHT exemption for these identified classes of individuals. To ensure that a deceased’s Executors can take advantage of the increased availability of exemptions, advisors need to look further into the client’s background and find out whether they are, or were, a member of the armed forces, emergency services personnel or a humanitarian aid worker. This has to be done sensitively at a time of distress to the deceased’s family, and raising expectations that cannot be fulfilled as a result of not understanding the scope and application of the exemptions must be avoided.

In all circumstances where advisors think the exemption may apply, specialist legal advice should be sought and any member of the Private Client team would be very happy to assist.

Chambers UK 2018

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