RegulationSep 23 2014

A Great Relief

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      Tucked away in paragraph 2.89 of HM Treasury’s Budget 2014 report was a proposal to extend the existing death-on-active-service inheritance tax (IHT) exemption for members of the armed forces to embrace members of the emergency services too.

      The full paragraph is set out in Box 1. HMRC published a consultation paper on this proposal on 23 July 2014. The consultation closes at noon on 15 October 2014 and HMRC proposes that draft legislation will be published in the Autumn statement 2014, to be retrospectively effective from 19 March 2014.

      The existing exemption is not an academic relief rarely encountered in practice. The main problem is that the wide scope of the exemption is not appreciated and the relief is not promoted by all professional advisers. Money Management was one of the first professional journals to draw attention to the relief in an article – IHT, a complete exemption – published in February 2006.

      With IHT anticipated to affect about 10 per cent of the population, coupled with the current push by HMRC to maximise tax receipts, the existing exemption is a standard bearer for what is morally right. Taking part in warfare can have a profound effect on the participant’s remaining life. I recall in the mid-1980s visiting a married couple in their late 80s. The husband had a disfigured forearm and I asked him what had happened. He replied “That was in the trenches in World War I. If I had to go through that again I would do myself in.” He then changed the subject.

      Existing relief

      The current relief is a complete exemption from IHT for members of the armed forces “or certain associated services” whose death was caused by an injury or disease received or aggravated while on active service. This summary of the statutory relief gives a clear (but wrong) impression that a direct connection needs to exist between the wound or disease and death.

      In 1979 the Duke of Westminster case made clear that the causal connection between the wound or disease and death does not have to be a direct one. In that successful appeal for a judicial review of the Ministry of Defence’s (MoD’s) refusal to grant the appropriate certificate, Mr Justice May concluded that on a proper construction of the statutory provision a person “died from the wound”, if: “...in consequence of the wound he died earlier than he would have done had he not sustained the wound, even though the wound was not the direct or an ascertainable cause of his death.”

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