STEP

Title Research

We will remember them

  • Author : Phil Reed
  • Date : November 2010
ABOUT THE AUTHOR: Philip Reed TEP is a partner in the private client team at Stephens Scown LLP and is an ex-Royal Navy pilot

There are not many complete exemptions from inheritance tax (IHT) in the UK tax system, but in today’s world of relatively high property values, we must seize those that are available. The predominant ones are well known and always applied – spouse exemption, agricultural property relief, business property relief. But what of the less well known? What about s154 Inheritance Tax Act (IHTA) 1984?

Some of you will recognise this as the ‘Death on Active Service’ provisions, probably touched on at law school or even, for the more courageous, the STEP Diploma. For many practitioners s154 has possibly not featured in your discussions with elderly clients or as a relief in an estate administration.

And this is also probably due to a misunderstanding by many within our profession of the circumstances in which this relief can apply.

Broad application

s154 provides full exemption from IHT where an individual dies from a wound inflicted, accident occurring or disease contracted whilst serving as a member of the armed forces of the Crown on active service against an enemy or other service of a warlike nature. It is easy to conclude that this relief is likely only to apply when a soldier, sailor or airman dies in the heat of battle, but read the case of the Duke of Westminster, and the full ambit of the relief as set out by the Court indicates otherwise. In that case, the Duke had been injured during World War II, but carried that injury until his death from cancer in 1967. The issue in dispute was whether there was any connection between the injury and any of the eventual causes of death, despite the passage of some 23 years. The Court determined that there was and granted the relief. May J’s interpretation of the application of the relief was clearly different from that of the Privy Council, which had initially rejected the claim:

‘In my opinion, what the Council, properly applying the law, ought to have asked themselves on the findings of fact which I am quite satisfied they did make about septicaemia was the jury question, to be asked of 12 ordinary sensible men and women: “Using your common sense and the facts as you know them, was the wound which the Duke sustained on active service a cause of his death a considerable number of years later?” It does not have to be the only cause. It does not have to be a direct cause, in the sense of having a direct pathological or physiological connection. In the light of the facts and your common sense, is it properly to be described as a cause of his subsequent death?’

So it is not necessary for there to be a direct causal link between the injuries and any of the causes of death recorded on the death certificate.

It is still the case that many taxable estates are administered without making a claim that should be made

But despite this expansion of its possible application, s154 remains a little-used exemption. The majority of successful claims by personal representatives (PRs) are in relation to World War II veterans and the reason is clear. Those brave men and women are likely to be in their 80s or 90s and will be reaching the end of their natural lifespan, despite their injuries. But it is still the case that many taxable estates are administered without making a claim that should be made. Families are paying IHT where there is possibly no liability.

How to claim

So how difficult is it to claim s154 relief?

It depends when you as a practitioner start to consider it as a possibility. For many of us, we will have long client relationships with ‘old soldiers’ and the process of planning for the relief can begin when we take will instructions. If it appears during your discussions that your client is a veteran of WWII, or indeed any conflict involving them as a member of HM Forces, don’t be afraid to ask the question ‘what kind of a war did you have?’ and explain the relief to them. Encourage them to record the details of the action in which they were injured. Ask for permission to contact their GP to obtain a medical report on those injuries and, importantly, how those injuries have affected their patient’s life. Tell the GP that a claim is likely to be made in the event of death and ask for the medical records to be retained when death occurs. Seek the permission of your client to speak to members of his family to obtain their written account of how the injuries have affected his daily life. Medical reports and anecdotal accounts are hugely useful when submitted in support of a claim.

If you do not have the opportunity to prepare prior to death and you are faced with an estate administration, start by asking the PRs about the testator’s service history. This, I believe, should be a standard enquiry. If there is a whiff of a potential claim, the same information above should be sought, but it may be that the GP has passed away, or as in a recent case I have dealt with, the testator outlived all of his direct family with knowledge of his life. Then consider the causes of death recorded on the death certificate. Do they refer directly to the injuries? Is there an obvious causal link? For example, death from respiratory disease in a recent case of a nurse who contracted TB whilst involved in the liberation of concentration camps.

If not, you may need to search for a more subtle connection. A successful claim in one of our recent cases resulted from showing that the deceased’s chronic back pain, following an amputation of a lower leg injured during action in Burma, masked the early detection of prostate cancer, the principal cause of death. In another case, the death certificate made no mention of the severe leg ulcers following shrapnel and gunshot wounds sustained in Burma in 1944 which had never healed and still evident at death in 2007. It merely recorded death due to senility and dementia, clearly an unfortunate oversight by the certifying doctor, but insufficient for a successful claim by the PRs. Having gathered vital medical reports from those who had treated the deceased for some years during the latter part of his life, we were able to persuade the Registrar to change the death certificate and full exemption was granted and IHT was repaid with interest.

Nil rate band

There has recently been an interesting twist in the s154 story. Following the introduction of the transferable nil rate band, instructions were received from the executors of a widow of a WW I veteran. The widow, considerably younger than her late husband, died in 2009. Her husband died in 1956 of leukaemia, having served throughout WW I in the trenches. He was at Ypres in July 1917, the first occasion that the Germans used mustard gas against allied troops, and at 14 other engagements with the enemy when mustard gas was deployed. With contemporary medical evidence from sinister sources such as Iraq and statistical analysis, we sought to show a strong medical causal link between exposure to mustard gas and subsequent contraction of leukaemia. If successful, the widow’s estate will benefit from two nil rate band allowances. The Services Personnel Veterans Agency’s decision is expected in December 2010.

Application

The application should be made directly to the Services Personnel Veterans Agency by letter submitting the deceased’s medical records and any supporting reports and statements, together with the death certificate. It is also advisable to include counsel’s supporting opinion. The SPVA’s decision is binding on HMRC.

The future

So what does the future hold for this golden relief? Will it still be there for the veterans of today’s conflicts in Iraq and Afghanistan? Given the recent difficulties experienced by the previous government’s dealings with the Gurkhas, it could be that this is the one complete exemption from IHT that no government would ever seek to dilute. We owe it to the families of these brave men and women to make sure that we never forget their sacrifices, nor s154.


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