Inheritance tax - Exemptions for the Armed Forces
What is the Armed Forces IHT exemption?
Inheritance tax (IHT) is charged on your death at the rate of 40% based on the value of your estate. This 40% rate is only charged on any value exceeding the nil rate band. The nil rate band (£325,000 in the tax year 2016-17) is the amount which is chargeable to IHT at the rate of 0%.
However, under Section 154 of the Inheritance Tax Act 1984, a deceased’s estate may be entirely exempt from IHT if they sustained illness or injury while serving in a war. This exemption can apply to those who previously served in the armed forces or were current serving members at the time of their death. It may also be available to those who were not combatants but were involved during armed conflicts (such as doctors, nurses or war correspondents).
The exemption does not apply to civilians killed as a result of war or as a result of acts of terrorism. However, it was extended in 2014 to cover members of the emergency services, such as the police, fire brigade and search and rescue services such as coast guards. It will also cover those transporting organs and medical equipment and humanitarian aid workers who may be working for a government, state or international organisation. As with the armed services exemption, the death has to occur as a result of an injury sustained whilst responding to an emergency.
The extension in 2014 also covered constables and armed services personnel targeted because of their status and will apply if the individual has died as a result of being deliberately targeted because of his or her status.
I am an executor of an estate where the deceased suffered injuries during war - will the Armed Forces IHT exemption apply automatically?
The exemption is not automatic for estates of those who died during, or as a result of injuries sustained whilst serving in the Armed Forces. The Service Personnel & Veterans Agency (SPVA) decides on exemption requests for each estate and considers whether it can be shown that the death of an ex-services person was hastened by an injury or illness sustained on active service against an enemy or other service of warlike nature.
Therefore, it must be established that the injury or disease was a contributory factor in the person’s death for a complete exemption from IHT to be granted.
What if the exemption is granted after the IHT has been settled?
There is no time limit on applying for the exemption and so retrospective claims for the exemption can be made even where the IHT may already have been paid in full. However, there is a six year limit on claiming any repayment of IHT from HM Revenue and Customs if the exemption is approved.
How long does it take to obtain the IHT exemption certificate?
Where there is a death of any serving member of the armed forces, they are automatically considered to see whether they qualify for the exemption from IHT and, where applicable, the appropriate certificate will be issued to the deceased’s executor around six to eight weeks of the death occurring.
However, consideration of an ex-services person involves the need to locate medical records and seek specialist advice on the deceased's medical history. It can therefore take around three to six months to complete.
Can the exemption be transferred to a spouse or dependent?
Unfortunately, the exemption is not automatically transferred to grant a total exemption on the estate of a spouse or dependent. However, the granting of such an exemption allows the deceased's full nil rate band to be transferred to their spouse's estate.
How we can help
Our team of lawyers have experience of successfully claiming the Armed Forces exemption and so can guide you through the process. We have a depth of experience and knowledge in dealing with estates, particularly those of a complex nature, with sensitivity and professionalism to help our clients through this difficult time.