The Government is continuing its comprehensive review of Inheritance Tax (IHT) by issuing its second consultation this year. Rather than seeking to increase revenue, this consultation seeks to extend the existing IHT exemption for armed forces personnel who die on active service to all emergency service personnel who die in the line of duty, or whose death is hastened by injury incurred in the line of duty. While clearly a popular and potentially headline grabbing manoeuvre from a Government gearing up to a General Election in May 2015, it is questionable the extent to which the extended exemption will actually be utilised. By their own admission, very few claims are currently made. Regardless of the motivation, the extension of an IHT exemption can only be a good thing.

The current rules grant full relief from IHT to the estates of members of the armed forces whose death can be attributed to, or is hastened by, injury or illness suffered while on active service (s.154 Inheritance Tax Act 1984). The exemption applies to current or former members of the armed forces who die as a result of a wound, accident or disease inflicted while they were on active service or other service of a warlike nature. No time limit is imposed and it is possible that death could occur decades later and the exemption still apply (provided a link can be established to the original injury).

The Government proposes to provide a comparative exemption to members of emergency service personnel whose death is caused or hastened by an injury sustained while responding to emergency circumstances. Emergency service personnel includes the fire service, ambulance and paramedic service, police force, coast guard, crew of a vessel operated by RNLI and members of voluntary organisations working with the police and fire and rescue services. The term 'emergency circumstances' is somewhat harder to define and likely to be subject to more debate and interpretation. It's not too difficult to foresee a circumstance where a member of the emergency services dies on duty while not responding to an emergency circumstance – is it intended that those people be excluded?

Interestingly, the Government is also proposing extending the exemption to include not just estate passing on death, but also any additional tax due on certain lifetime transfers. This is a welcome proposal given that, had the person chosen not to make a gift, their estate would have been fully exempt.

The extension of the exemption will only really impact those leaving their estate to anyone other than a spouse or civil partner and those whose estates exceed the IHT threshold (£325,000).

The closing date for responses to the consultation is 15th October 2014. Legislation is expected in the Finance Bill 2015, with the legislation being effective for all deaths on or after 19th March 2014.



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