Tax Talk: Blue light Inheritance Tax

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The estate of medical staff who died due to COVID-19 which was contracted during their work may be able to claim an Inheritance Tax (IHT) exemption.

The exemption was originally introduced to support the families of soldiers who died in active duty, but since 2014 has been extended to cover the deaths of emergency responders when responding to emergency circumstances.

Inheritance Tax

In normal circumstances, on the event of an individual’s death, the estate would need to assess their liability to IHT. Each estate would benefit from the Nil Rate Band (NRB) of £325,000, which could be increased up to £650,000 for married couples or those in civil partnership, as well as the Residence Nil Rate Band (RNRB) if the estate transfers a property directly to descendants (such as children). After deducting further available allowances the balance will be liable to IHT at 40% (36% if at least 10% of the net estate is left to charity).

If the estate qualifies for ‘blue light’ relief, the normal IHT provisions will not apply to the estate, instead, the estate will be exempt from paying IHT.

When does it apply?

The ‘blue light’ IHT exemption can apply to an estate when:
  • An individual dies from an injury sustained, accident occurring or disease contracted at a time when that individual was responding to emergency circumstances in that individual’s capacity as an emergency responder; or
  • An individual dies 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 that individual was responding to emergency circumstances in that individual’s capacity as an emergency responder.
Since the pandemic began, thousands of NHS workers have contracted COVID-19 with many of them sadly losing their lives. The long-term health consequences of the disease on some of these individuals may not yet be apparent, but for those that have been badly affected by the disease, the exemption could be of relevance in the future.

With the COVID-19 pandemic ongoing, the disease will continue to have an impact on our lives for the foreseeable future and this exemption may become more relevant for certain individuals.

Who qualifies?

‘Emergency responders’ is defined in the legislation, but importantly does not need to be paid employment and can be unpaid volunteering work. It covers individuals working in:
  • Fire services or fire and rescue services
  • Search services or rescue services
  • Medical, ambulance or paramedic services
  • Services for police purposes
  • Services for the transportation of organs, blood, medical equipment or medical personnel
The definition also includes providing humanitarian aid. 

The legislation has not been tested sufficiently as to what jobs can be covered by ‘medical services’, but this would apply to doctors and nurses. We do not know whether support staff or care home workers, for example, would currently be included in the definition. 

Furthermore, other key workers continuing to support the country throughout the pandemic are not included within this definition. It has been reported that there have been 43 COVID-19 related deaths of transport workers. They would not be covered under this ‘blue light’ IHT exemption yet continue to provide essential services to the country.

Within the legislation it states that the Treasury has the power to extend the definition of ‘emergency responder’, so as the pandemic continues it will be interesting to see whether the government consider making amendments to the existing legislation.

A small but welcome comfort

The rules around IHT have become increasingly complex, so we would suggest you seek professional advice to support you in dealing with any estate administration.

Less than 5% of UK deaths result in a charge to IHT, but there may be some estates that could benefit from the ‘blue light’ exemption. An exemption from IHT will never make up for the loss of a life, however, it is a small acknowledgment of the sacrifice made by the emergency services and will remove a layer of officialdom at a time of great sadness.

If you have any questions relating to any topic covered in this article, please contact us and we will be happy to assist you.

Written by Phil Clayton and Shaharan Deen in our London office.