Policy paper

Inheritance tax relief for infected blood compensation payments extension

Published 26 November 2025

Who is likely to be affected

Beneficiaries and personal representatives of individuals who are eligible for compensation under the Infected Blood Compensation Scheme and or Infected Blood Interim Compensation Payment Scheme (‘the Infected Blood Compensation Schemes’).

General description of the measure

This measure extends the existing relief from Inheritance Tax (IHT) for payments made under the Infected Blood Compensation Schemes. Where a person eligible for compensation under the Infected Blood Compensation Schemes has already died at the time of payment, the first living recipient of that payment will receive an IHT credit to pass on the value of the compensation following their own death without an IHT charge.

Where the person eligible for the compensation has already died, the first living recipient will also have 2 years in which to pass on some or all of the compensation payment they receive, without any IHT becoming due. Any qualifying amount gifted will retain an equivalent IHT credit.

These changes will apply regardless of whether the person originally eligible for compensation was an infected person or an affected person.

Policy objective

This measure ensures that compensation payments made under the Infected Blood Compensation Schemes can be inherited without an IHT charge, in cases where the infected or affected person has died before compensation could be paid.

Background to the measure

The Infected Blood Compensation Schemes provide financial compensation to those who have been infected and or affected by infected blood or blood products in the UK. Payments made under the Infected Blood Compensation Schemes are relieved from IHT on the death of the infected or affected person.

Prior to these changes, if the infected or affected person had already died at the time compensation was paid, and the payment was instead made to a living recipient (for example, the infected or affected person’s spouse), no IHT relief would apply when that recipient died.

These changes ensure that, if an infected or affected person has died before compensation is paid, an IHT credit will instead apply on the death of the first living recipient of that payment, so that no IHT is charged on the value of the payment.

This measure also makes changes that may be relevant to gifts of compensation during the lifetime of the first living recipient. Where the first living recipient do not wish to retain the compensation payment they may wish to redirect it to another person. It may be too late to make a deed of variation to amend the will or intestacy of the infected or affected person — and so redirect the inheritance of the compensation payment — as this would only be effective for IHT purposes if made within 2 years of the infected or affected person’s death. These new changes allow the first living recipient to make qualifying gifts of some or all of the compensation and transfer a corresponding IHT credit.

Detailed proposal

Operative date

Part of this measure is operative from 26 November 2025 with retrospective effect. Where a compensation payment under the Infected Blood Compensation Schemes has been made in respect of an infected or affected person who has already died, an IHT credit will apply on the death of the first living recipient of the compensation payment. This includes payments made before 26 November 2025.

Changes to the rules on gifting will have effect for qualifying gifts of compensation made during the lifetime of the first living recipient on or after 4 December 2025. If the compensation payment was made before 4 December 2025, it will be treated as though it had been made on 4 December 2025 for the purposes of the 2-year window for gifting.

Current law

Section 4 Inheritance Tax Act 1984 (IHTA) imposes the charge to IHT for transfers on death. Compensation payments, or the right to receive such compensation, are generally treated as part of the deceased’s estate and subject to IHT on their death.

Schedule 15 paragraph 5 Finance Act 2020 provides a relief from IHT in respect of qualifying payments from statutory compensation schemes.

Payments made under the Infected Blood Compensation Schemes are qualifying payments for the purposes of schedule 15 Finance Act 2020. This is set out in The Post Office Horizon Compensation and Infected Blood Interim Compensation Payment Schemes (Tax Exemptions and Relief) Regulations 2023 and The Infected Blood Compensation Scheme (Tax Exemptions and Relief) Regulations 2024.

Section 142 IHTA enables a beneficiary of an estate to amend the terms of the deceased’s will within 2 years of their death, to redirect some or all of their inheritance to a different beneficiary and to have that change taken into account for IHT purposes in respect of the deceased’s death.

Proposed revisions

The government will legislate in Finance Bill 2025-26 so that, if an infected or affected person has died before compensation is paid under the Infected Blood Compensation Schemes, an IHT credit will instead apply to the estate of the first living recipient of the compensation payment. Where the first living recipient to benefit from the compensation payment does so concurrently with other recipients, the credit will apply to each recipient’s estate, in proportion to each recipient’s share of the compensation payment.

The government will also legislate in Finance Bill 2025-26 to allow the first living recipient to gift some or all of their compensation payment with any IHT charge. Any qualifying amount gifted will retain an equivalent IHT credit when the recipient of the gifted payment dies. If the compensation payment was made before 4 December 2025 the first living recipient will have 2 years from 4 December 2025 to make any qualifying gifts. If the compensation payment is made after 4 December 2025 the first living recipient will have 2 years from the date of payment to make any qualifying gifts.

Summary of impacts

Exchequer impact (£ million)

2025 to 2026	2026 to 2027	2027 to 2028	2028 to 2029	2029 to 2030	2030 to 2031
Negligible	Negligible	Negligible	Negligible	Negligible	Negligible

This measure is expected to have a negligible impact on the Exchequer.

Macroeconomic impact

This measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

This measure will impact the beneficiaries of infected or affected individuals who were eligible for compensation under the Infected Blood Compensation Schemes but have died before receiving the compensation payment.

These changes will have an impact on the families of infected or affected people of the Infected Blood scandal. Surviving spouses, partners and other family members who receive compensation payments on behalf of infected or affected people will be able to pass on that payment to their children or other beneficiaries without an IHT charge.

The IHT relief is applied to the estates of eligible individuals who have received compensation payments following an application to HMRC on the form IHT400. These changes are expected to have no impact on customers’ experience of dealing with HMRC, as they do not change any existing processes or tax administration obligations.

The measure is not expected to impact on family formation, stability or breakdown.

Equalities impacts

An individual may be affected by this measure regardless of their protected characteristics. HMRC does not currently hold data on the protected characteristics of individuals impacted by this measure and so cannot make an assessment of the impacts on those with shared protected characteristics.

Administrative impact on business including civil society organisations

This measure is expected to have no impact on businesses or civil society organisations. It only affects individuals in receipt of payments made under the Infected Blood compensation schemes.

Operational impact (£ million) (HMRC or other)

These changes are not expected to create additional operational costs for HMRC.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

Consideration will be given to monitoring this measure through information collected from submitted IHT400 forms and kept under review through communication with affected taxpayer groups.

Further advice

If you have any questions about this change, contact Inheritance Tax: general enquiries.