Policy paper

Inheritance Tax: compensation and ex-gratia payments for victims of persecution during the World War II era

Published 9 December 2015

Who is likely to be affected

Original victims or their surviving spouse or civil partner who have received compensation for wrongs suffered at the hands of the National Socialist regime during the World War II era.

Surviving members of British groups, or their surviving spouse or civil partner, who have received ex-gratia payments for their treatment whilst interned or imprisoned by the Japanese during the World War II era.

General description of the measure

This measure will legislate Extra Statutory Concession (ESC) F20 which gives an Inheritance Tax (IHT) exemption in respect of certain compensation and ex-gratia payments for World War 2 claims. The measure will also extend the scope of the existing concession to include a one off compensation payment of €2,500 made under a recently created scheme known as the Child Survivor Fund and will allow the Treasury to add any further schemes to the current list by way of regulations.

Policy objective

This measure ensures that ex-gratia or compensation payments from certain listed schemes, or rights to such compensation, are not subject to IHT, whether the payment is made to the claimant before their death or later to their Personal Representatives.

Background to the measure

ESC F20 was introduced in 2001 to exempt from IHT the ex-gratia payments made by the government to the British groups held prisoner by the Japanese during the World War II era. Following publication this concession was then extended twice to include other schemes with the common feature that they were paying out at the time -some fifty years or more after the event for personal hurt suffered during the National Socialist era.

The House of Lord’s decision in R v HM Commissioners of Inland Revenue ex parte Wilkinson (2005) UKHL 30 clarified the scope of HM Revenue and Customs (HMRC) administrative discretion to make concessions that depart from the strict statutory provision. Legislating ESC F20 is part of a legislative programme intended to give statutory effect, where appropriate, to existing ESCs that may exceed the scope of that discretion.

This measure was announced at Autumn Statement 2015. There has been no consultation on the measure.

Detailed proposal

Operative date

The current ESC has effect until 1 January 2015. The legislation will be introduced in Finance Bill 2016 but will be back dated to 1 January 2015.

Current law

ESC F20 provides an IHT exemption for compensation and ex-gratia payments for personal hurt where a person (the deceased) has died and either the deceased or his Personal Representatives have received a one off lump sum compensation payment from one of the schemes listed in the ESC. In the absence of this concession or a similar statutory exemption such compensation, or the right to receive such compensation, would be treated as part of the deceased’s estate and would be subject to IHT on his death under section 4 of the Inheritance Tax Act 1984 (IHTA).

Proposed revisions

Legislation will be introduced in Finance Bill 2016 to insert a new clause into Part 5 Chapter 5 IHTA 1984 to specify that the tax on the amount of the compensation payment made by those schemes that are currently listed in the ESC and a one off payment of €2,500 made by the Child Survivor Fund should be allowed as credit against the tax arising on the chargeable value of the recipient’s estate.

The legislation will also allow the Treasury to add any further schemes to the current list by way of regulations.

Summary of impacts

Exchequer impact (£m)

2015 to 2016	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021
negligible	negligible	negligible	negligible	negligible	negligible

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

Economic impact

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

Impact on individuals, households and families

This measure is expected to have a minimal impact on individuals, households and families as the legislation will replace and put on a legislative footing the existing ESC.

The number of estates that are likely to be affected by the legislation each year is expected to be less than 100 estates.

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

Equalities impacts

The measure will include victims of National Socialist persecution. This will have a positive equalities impact as the exemption will cover persons who were persecuted by the National Socialist regime on the basis of race, religion, physical or mental disability or sexual orientation.

Impact on business including civil society organisations

Relevant charitable organisations and businesses will already be familiar with the existing ESC. There are likely to be negligible one-off costs to charitable organisations and businesses who help the victims of World War II who will need to familiarise themselves with the new legislation.

Operational impact (£m) (HMRC or other)

There will be no significant additional operational impacts from the legislative change needed to support the new exemption.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

This measure will be kept under review through communication with affected taxpayer groups.

Further advice

If you have any questions about this change, please contact the Assets and Residence Policy Team on Telephone: 03000 558551 or email: ihtandtrustsconsult.car@hmrc.gsi.gov.uk.