There’s over 159,000 people working full-time for the Armed Forces in the UK.
The majority of them work for the Army, with the remainder split between the Royal Navy, Royal Marines and Royal Air Force. For these service personnel and veterans, there are little known, but potentially highly valuable Inheritance Tax (IHT) advantages.
What is Inheritance Tax?
IHT is tax on a deceased person’s estate. This is set at a rate of 40% above their tax-free threshold, known as the Nil Rate Band. IHT can double-up through being transferred where a person has been married or in a civil partnership (and their spouse or civil partner has died before them), and any other threshold, reliefs or exemptions.
The Nil Rate Band is currently limited to £325,000 per individual, and is currently fixed until April 2026.
Calculating the amount of IHT due
The calculation of IHT payable is subject to the applicability of any further threshold, such as:
- The Residence Nil Rate Band
- Any ‘reliefs’
- Any ‘exemptions’ applicable to the estate as a whole.
The Residence Nil Rate Band is an additional threshold of up to £175,000 per person, which can pass on after death free of IHT. This can also double if a spouse or civil partner has died.
This is applicable if a person is leaving their property or the equivalent value after sale to their direct descendants, which includes children, grandchildren and step-children, among others.
Reliefs and exemptions otherwise can be applicable in different circumstances. These can include:
- People dying in quick succession
- Gifts left to charities and spouses
- Agricultural or business interests or assets that are gifted.
IHT is then charged on anything above the Nil Rate Band amount. But it takes into account applicable gifts given in the seven years before a person has died and other factors mentioned.
When is this 40% rate of tax saved?
Estates are relieved of paying IHT under section 154(1)(a) of the Inheritance Tax 1984, if someone dies whilst on active service, or where death is a result of an injury sustained on duty.
For deaths on or after 19 March 2014, exemption also applies to service personnel and civilians (subject to service discipline), who are responding to emergency circumstances in their duties.
The exemption also applies to those who die as a result of being targeted due to their job. This applies to:
- Constables
- Service personnel
- Civilians (subject to service discipline)
- Those who’ve retired.
Humanitarian aid workers dying in the course of duty are also included in the exemption. Where someone has died and they had any of these positions during their lifetime, it’s worth exploring, as exemption could apply.
When can I claim the exemption?
Many of those close to deceased members of the military community might have lost out on claiming this exemption.
In 2020, it was found there were fewer estates claiming any ‘other’ exemptions from IHT, including section 154, than ever, over a seven year period. But, many deaths during the Coronavirus pandemic were noted as being caused due to COVID-19.
There isn’t a time limit on when the wound, injury, accident or disease happened. The sooner the exemption for IHT purposes is claimed, the better. This is to make sure there’s no unnecessary interest paid on IHT, which can take some time to recover.
How we can help
Our dedicated team have dealt with many cases where we’ve successfully applied for the section 154 exemptions.
Executors have a duty to maximise a person’s estate. If a person’s death might have been due to, or accelerated by, something they contracted when on active service, we can help.
We’re proud to be one of only a handful of law firms to be granted a Gold Award in the Defence Employer Recognition Scheme (ERS). The government initiative recognises employers who support Armed Forces reservists within their organisation, so you know you’re in safe hands.
Further reading
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