There are a number of different inheritance tax (IHT) reliefs available, with some far more widely used than others, for example the spousal exemption.
However, one of the lesser-known exemptions, known colloquially as the ‘blue light’ relief, has recently been thrust into the spotlight as a result of the ongoing Covid-19 pandemic.
What is ‘blue-light’ relief?
This relief was originally introduced so that soldiers who were killed in battle during active service were exempt from paying death duties or, later, inheritance tax. During World War Two, the relief was extended to include soldiers who died as a result of injury or disease caught during active service.
More recently, in 2015, the relief was extended further to include emergency services personnel, hence ‘blue light’ relief, as well as humanitarian aid workers. The relevant legislation is contained within section 153A of the Inheritance Tax Act 1984. Where the relief applies, it means that normal IHT rules do not apply to a person’s estate and no IHT is payable.
When does it apply?
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, or
- 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.
Emergency circumstances includes anything that is causing, or likely to cause either the death of a person, or serious illness of a person, or a worsening or any such illness, among several other circumstances in which this relief would apply.
It is therefore easy to see why this relief has become more relevant during the current pandemic, as sadly, many NHS workers have died, with many more still suffering from Covid-19. The longer-term effects of the virus on their health is still relatively unknown at this stage, but the relief could remain relevant for these workers for many months, if not years, into the future.
Who qualifies for the relief?
Within the legislation, an ‘emergency responder’ is defined as:
(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),
(c) a person employed for the purposes of providing, or engaged to provide, medical, ambulance or paramedic services,
(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.
Based on the definitions, it is likely that this relief would be available to all workers who provide medical care to those suffering from coronavirus, and there does not appear to be any requirement that the work be paid, or even permanent employment, so it may be that this relief would be available to voluntary or temporary workers who are helping during the crisis.
It is not clear, however, whether the relief would extend to cover care workers or social workers who are caring for coronavirus patients, and it seems unlikely unless their role includes providing medical services, as opposed to meeting basic care needs.
It is also unlikely that the relief would apply to those people working within the NHS, hospitals and care homes, where their role is limited to providing administrative support rather than actively providing medical care services. It may be that we see some test cases in this area over the coming months which may offer more guidance and clarification as to exactly when the relief will apply.
At the time that the relief was extended in 2015, the Government expected the proposed extension to have a negligible economic impact, however in light of the current pandemic, and the associated death rates amongst our emergency workers, it is likely that this relief will be more widely claimed than initially expected, in turn leading to a much bigger economic impact at least for this year, if not for years to come.
When advising clients who may be within the category of ‘emergency responder’ due to their employment, advisers should make their clients aware of the IHT relief that may be available if they were to die in the circumstances outlined above.
However, no further planning can really take place reliant on the relief due to the unforeseeable nature of the relief, and when it would be available. If an adviser is dealing with a case where a client has passed away, and is involved in the probate case or advising the family, they should make sure that the personal representatives know that they should claim the exemption where appropriate as part of the probate process.
The personal representatives would need to be able to demonstrate to HMRC that the death was as a result of, or was hastened by, their being an emergency responder who was responding to emergency circumstances, for example by providing evidence from the relevant emergency service involved, or a medical report explaining the link between the cause of death and the emergency circumstances concerned.
Libby Holding is legal services director at APS Legal & Associates