Key workers and death in active service inheritance tax exemption

16 June 2020 / Owen Byrne

Issue: 4748 / Categories: Comment & Analysis

On the frontline

Key points

There is an inheritance tax exemption for the estates of those who die on active military service.
The exemption was extended in 2014 to cover deaths of emergency responders when they are responding to emergency circumstances.
Medical staff are within the definition of emergency responders, other key workers are not. HM Treasury has the power to extend the definition.
To fall within the legislation, the government would need to confirm that dealing with Covid-19 would be considered responding to emergency circumstances.

The Inheritance Tax Act 1984, s 153A to s 155A contains an exemption from inheritance tax for the estates of those who die on active service or – and this is really worth tax practitioners remembering – those who die later from an injury or disease contracted while on active service. It is a gesture from a grateful nation. Clearly, it cannot bring the deceased back, but it is a small token to honour their sacrifice.

From March 2014, this exemption was extended beyond those in the armed forces to:

members of the emergency services and humanitarian aid workers responding to emergency circumstances; and
constables and service personnel if a person is deliberately targeted by reason of their professional status.

The current ‘national emergency’

We are living in extraordinary times and this makes me wonder whether this exemption on the death of those acting in emergency circumstances could – and should – be applied to hospital staff and other key workers who die as a result of catching Covid-19 in the course of treating those with the same virus?

Everyone has seen the news, in particular the segments where reporters have been embedded in a hospital ward, highlighting the long shifts, the requirements to wear the stifling personal protective equipment (PPE) for long periods, the demands for attention across a busy ward, and the exposure they must have to Covid-19 themselves. Some staff are staying in hospital accommodation to be nearer to the wards and to avoid going home and putting their families at risk. It is not an understatement to say that hospital and care home staff have faced a real threat of death.

Although the inheritance tax exemption was originally there for the armed services, NHS staff are now in a fight of a different kind, but one nevertheless where some have already paid the ‘ultimate sacrifice’. The language being used by politicians and in the press is reminiscent of wartime, with talk of the fight against coronavirus, ‘armies’ of NHS workers on the ‘frontline’ and suchlike.

Crucially, prime minister Boris Johnson, in his letter to households across the country at the beginning of the lockdown period, referred to a ‘moment of national emergency’.

The legislative framework

It is worth looking at the specific language and definitions used in IHTA 1984, s 153A.

IHTA 1984, s 153A

Death of emergency service personnel etc

(1) The reliefs in subsection (2) apply where a person:

(a) 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; or

(b) 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 person was responding to emergency circumstances in that person’s capacity as an emergency responder.

(2) The reliefs are:

(a) that no potentially exempt transfer made by the person becomes a chargeable transfer under s 3A(4) because of the death;

(b) that s 4 (transfers on death) does not apply in relation to the death; and

(c) that no additional tax becomes due under s 7(4) because of a transfer made by the person within seven years of the death.

(3) ‘Emergency circumstances’ means circumstances which are present or imminent and are causing or likely to cause:

(a) the death of a person;

(b) serious injury to, or the serious illness of, a person;

(d) serious injury to, or the serious illness of, an animal;

(e) serious harm to the environment (including the life and health of plants and animals);

(f) serious harm to any building or other property; or

(g) a worsening of any such injury, illness or harm.

(4) A person is ‘responding to emergency circumstances’ if the person:

(a) is going anywhere for the purpose of dealing with emergency circumstances occurring there; or

(b) is dealing with emergency circumstances, preparing to do so imminently or dealing with the immediate aftermath of emergency circumstances.

(5) For the purposes of this section, circumstances to which a person is responding are to be taken to be emergency circumstances if the person believes and has reasonable grounds for believing they are or may be emergency circumstances.

(6) ‘Emergency responder’ means:

(a) a person employed, or engaged, in connection with the provision of fire services or fire and rescue services;

(b) a person employed for the purposes of providing, or engaged to provide, search services or rescue services (or both);

(d) a constable or a person employed for police purposes or engaged to provide services for police purposes;

(e) a person employed for the purposes of providing, or engaged to provide, services for the transportation of organs, blood, medical equipment or medical personnel; or

(f) a person employed, or engaged, by the government of a state or territory, an international organisation or a charity in connection with the provision of humanitarian assistance.

(7) For the purposes of subsection (6):

(a) it is immaterial whether the employment or engagement is paid or unpaid; and

(b) ‘international organisation’ means an organisation of which:

(i) two or more sovereign powers are members; or

(ii) the governments of two or more sovereign powers are members.

(8) The Treasury may, by regulations made by statutory instrument, extend the definition of ‘emergency responder’ in subsection (6).

(9) Regulations under this section are subject to annulment in pursuance of a resolution of the House of Commons.

IHTA 1984, s 153A(5) is interesting: circumstances are emergency circumstances if the person believes and has reasonable grounds for believing they are emergency circumstances. Without intending to sound flippant, it is difficult to ask a deceased emergency responder whether they believed and had reasonable grounds for believing they were responding to an emergency situation. However, perhaps we do not need to in the present crisis. Johnson’s confirmation to the nation that we were and are in a moment of national emergency allows all emergency responders to reasonably believe they were responding to emergency circumstances.

A more difficult question to answer is who we can fit into the existing definition of emergency responders? Doctors, nurses and paramedics are clearly within the scope of s 153A(6)(c), but care home workers providing non-medical care and, say, hospital porters or other hospital workers acting in support roles but still on the frontline appear to be outside the definition. Assistance is given by s 153A(8) which allows the Treasury to extend the definition.

So I suggest the government could – with mere tweaks to the existing legislation and by making suitable updates to HMRC’s Inheritance Tax Manual – extend the scope of the legislation to cover NHS and other key workers dying of Covid-19 contracted after treating or otherwise coming into contact with patients with the coronavirus.

HMRC’s consultation paper – Inheritance Tax: exemption for emergency service personnel (tinyurl.com/ybnexqtp) in 2014 made it clear that the government wanted to bring emergency personnel responding to ‘blue light’ emergencies on to a parity with the armed forces.

Covid-19 is a ‘national emergency’ according to Johnson so must surely be considered blue light.

Political will?

The question then comes down to whether the government will take action. Would it cost a lot for the government to do this? Probably not.

I must admit to not having been able to penetrate the Office for National Statistics’ vast swathes of Covid-19 related data to find an accurate and up-to-date number of health and social care workers who have died with Covid-19, but press reports put it in the hundreds. On 27 April, Matt Hancock reported that 82 NHS staff and 16 social care staff had died as a result of contracting the virus.

In reality, because only 5% of deaths each year result in inheritance tax being payable, it is probable that only a few extra estates would benefit from the exemption.

It is also worth remembering that inheritance tax brought in £5.35bn in 2018-19, less than 1% of the government’s total tax take of £620bn. Even if the gesture were to cost in the low millions of pounds, it would pale into insignificance against the £330bn funding package the government has put in place to help businesses and the economy in general.

I realise people might say that the exemption would just be helping out the families of rich consultants rather than the nurses or care home staff who are paid much less, but there are two counter-arguments to this.

First, the same generalism could have been said about those in the armed forces – soldiers might not have enough wealth to be hit by inheritance tax but the higher ranking officers might. However, this would not prevent the government making the gesture in the first place.

Second, the inheritance tax threshold is £325,000 and has been since 2010, so a nurse, for example, who bought a house many years ago could, by now, easily have an estate that was potentially subject to inheritance tax.

The government did announce on 27 April that it would pay £60,000 to the families of NHS and social care staff who died from Covid-19 in the course of ‘essential frontline work’. This is to be welcomed, but it is never going to make up for the loss of years of active service that many of the deceased would have had in front of them, so an exemption from inheritance tax on their estate could be a more significant way of acknowledging that lost earning power for the family as a whole.

Issue: 4748 / Categories: Comment & Analysis