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Inheritance Tax Exemption for members of the Armed Forces

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There is a little known exemption from Inheritance Tax (IHT) which means that when a member or former member of the Armed Forces dies as a result of injuries or disease sustained whilst on active service, their whole estate is exempt from the payment of IHT which would normally be levied at a rate of 40%. This is often overlooked, resulting in unnecessary tax being paid and the estate of the serviceman reduced for their surviving family.

Some points to note:

“that he died from a wound inflicted, accident occurring or disease contracted at a time when the conditions specified below were satisfied

–active service against an enemy or

-other service of a warlike nature or which in the opinion of the Treasury involved the same risks as service of a war like nature

Or that he died from a disease contracted at some previous time, the death being due to or hastened by the aggravation of the disease during a period when those conditions were satisfied”

Our Armed Forces are becoming increasing involved in action around the world and it is likely that this exemption will apply to more estates, if not immediately, in some years to come.

The increase in services by the Armed Forces and other agencies may make the definition above of “other service of a warlike nature or which in the opinion of the Treasury involved the same risks as service of a war like nature” important.

Whoever is dealing with the estate needs to be aware of the way in which it works, as if it is not applied for, it won’t be offered as a gift by HMRC. For estates which have already been concluded, it may be possible to ask for a refund of IHT paid on the basis of this exemption, if granted.

For more information about this or any other matter please contact our private client team. 

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