Two high profile membership bodies have petitioned the government to address a ‘critical flaw’ in inheritance laws that subject the estates of families in receipt of compensation payouts to inheritance tax (IHT).
Earlier this year the Society of Trust and Estate Practitioners (STEP) and The Association of Lifetime Lawyers (ALL) identified a gap which subjected the estates of victims who died before receiving their payout, to IHT. While HMRC has confirmed compensation payments are exempt from inheritance tax, where victims died before receiving compensation, payments to their estates are being taxed during secondary transfers.
The matter was brought to light in May when the government announced it had set aside £11.8bn to compensate victims of the infected blood scandal, after a public inquiry found the authorities had covered up the scale of the failings. More than 30,000 people in the UK were infected with HIV and hepatitis C after being given contaminated blood products in the 1970s and 1980s, and it is estimated that 140,000 victims, including bereaved parents, children, and siblings are still waiting for compensation.
But delays in payments means many victims have died before receiving their compensation and their money has been treated as part of their estate and may be taxed when it is passed on to someone else – a scenario known as a ‘secondary transfer’.
After bringing the issue to the attention of HM Revenue & Customs (HMRC), now STEP and ALL have written an open letter to the Chancellor of the Exchequer, sharing their frustrations at being ignored, despite providing the outline of a legislative fix which they say would:
- Ensure that all compensation payments connected to the Infected Blood Scandal are treated consistently for IHT purposes, whether the victim or affected person was alive or deceased at the time of payment;
- Provide a fair and compassionate resolution that is simple to implement through secondary legislation;
- Avoid further injustice for bereaved families, while also creating a model solution for other redress schemes covered under Schedule 15 of the Finance Act.
- a straightforward legislative proposal was also put forward by STEP, the Association of Lifetime Lawyers and Richard Dew, a barrister at Ten Old Square, to swiftly resolve the issue of secondary transfer.
Not only would this support victims of the infected blood scandal, but it would also help those affected by the Windrush and the Post Office scandals, as well as others covered under Schedule 15 of the Finance Act.
The proposal is also supported by the Law Society of England and Wales.
Jade Gani TEP, Chair of The Association of Lifetime Lawyers, said:
“Victims and their families have already endured decades of pain and delay, it is an outrage that a technical flaw will allow the government to claw back up to 40% of the compensation that was specifically intended to provide some redress. Families should not be further penalised due to delays outside their control. This is about preventing bereaved families from being actively punished by a tax system that, in effect, rewards the government for delays.”
Emily Deane TEP, Technical Counsel and Head of Government Affairs at STEP, added:
“It has been months since we first provided HMRC with a straightforward and compassionate legislative fix, and we are still waiting for a response and action. This is completely unacceptable. We are saddened, outraged and frustrated that there is no level of urgency from HMRC. The government must stop delaying and bring forward secondary legislation to ensure all compensation payments are treated consistently for inheritance tax purposes. The bereaved families of the infected blood scandal should not be subject to further injustice.”
The two bodies have also written to their membership calling on them to write to the local MP to lobby for action. Legal experts from the two bodies have also met with HMRC and the Infected Blood Scandal Compensation Authority (IBCA), and submitted a detailed report, including case studies highlighting the impact on victims and families of secondary transfer IHT issue. The collective bodies have also provided HMRC with a legislative proposal that would remedy this error.
To access the template letter to MPs, which affected individuals, their families and friends can use to mount further pressure on legislators, visit: https://www.step.org/press-office/infected-blood-inquiry
