Inheritance tax relief for emergency workers

Typically, many of us will have to pay up to 40% inheritance tax on what we leave behind when we are gone (our estate). For public policy reasons, however, some of our estates are exempt from inheritance tax (IHT).

For a long time now tax relief has been available for the estates of anyone who works in the armed forces and is "killed in active service". Likewise for war veterans whose wartime injuries or illnesses contribute to their death many years later.

Nowadays there is also an exemption for emergency workers whose deaths are caused by an injury or illness resulting from their response to a 'blue light' situation. This covers members of the police, fire, ambulance or search and rescue services. Again this can apply to situations where that injury or illness does not immediately kill them but shortens their life expectancy. 

Given the number of people risking their lives to help our country weather the storm of coronavirus (Covid-19), many of us may be wondering how far this goes. Can this 'blue light' exemption help them too?

This IHT exemption is likely to be more relevant than ever. The Covid-19 pandemic brings this relief into sharp focus, having already claimed (directly or indirectly) the lives of many emergency responders. The relief will provide some helpful support for their families and loved ones.

The detail of when this exemption applies is set out in legislation. It says the relief applies when a person dies from:

• an injury sustained, accident occurring or disease contracted at a time when that person was responding to emergency circumstances in that person's capacity as an emergency responder
• 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 person was responding to emergency circumstances in that person's capacity as an emergency responder.

The tax relief can apply to a wide range of estate matters, including a person's:

• personal assets (e.g. cash and possessions)
• gifts to other people (sometimes you have to pay IHT on these)
• asset transfers in to trusts (e.g. trusts set up for grandchildren)
• jointly-held assets (e.g. a property held as joint tenants)
• trust interests (e.g. if they had a lifetime interest in trust property)

The 'blue light' relief applies to the estates of emergency responders. An 'emergency responder' includes anyone who provides medical, ambulance or paramedic services. It also includes someone who is employed to transport medical equipment or personnel.

It has yet to be tested how far this goes, and whether 'emergency responder' also covers people who provide administrative and management support. This takes on a new importance given the coronavirus outbreak. However, it seems likely that the relief should be available to the estates of (paid or voluntary) workers who give medical care and support to seriously ill people, if:

1. that work means they contract Covid-19
2. Covid-19 then causes their death or brings it about more quickly

This may apply to many nurses. It is unclear whether this also extends to care or social workers (e.g. those working in a care home). However, other relief may be available instead. For example, if someone is employed to provide humanitarian assistance in response to a natural disaster. HMRC recognised many such cases in relation to the 2014 ebola outbreak in Africa.

In any event, we can expect to see a swell of public opinion and policy decisions in this area, as test cases are taken to HMRC and people ask for further clarification of the circumstances in which the relief will apply.

While we wait in hope for a vaccine, it seems clear that the Covid-19 virus is not going away any time soon. We also do not know its full impact on the health of patients who make an apparent recovery. We are, however, beginning to learn about some of the life-long issues it can leave behind. For example, respiratory damage or dialysis needs. Therefore, the issue of whether this relief applies is likely to be a concern for many of us for years to come.

If you are:

• an executor of an estate you might wish to get advice about whether this relief could apply to your estate
• a beneficiary of an estate you might wish to get advice about varying your entitlement to ensure that the estate, or part, passes to beneficiaries who may benefit from the relief
• someone who thinks they could be an ‘emergency responder’ you might wish to get advice about how to make sure that your family and friends can get the full benefit of this relief