Inheritance Tax relief for compensation payments made under the Post Office Horizon Shortfall Scheme and Group Litigation Order
Published 19 September 2023
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Who is likely to be affected
This measure affects sub postmasters and the estates of deceased sub postmasters and their personal representatives, entitled to, or in receipt of, compensation payments under the Post Office Limited (POL) Horizon Shortfall Scheme (HSS) or Group Litigation Order (GLO) scheme.
General description of the measure
This measure provides Inheritance Tax (IHT) relief for payments made to victims of the Post Office Horizon scandal under the HSS (including top-up payments made under this scheme) and GLO compensation schemes.
Policy objective
These changes give certainty to claimants that payments made under the HSS and GLO compensation schemes will not give rise to IHT charges on their death.
This measure brings the IHT treatment of HSS and the GLO scheme payments in line with those made to postmasters under the Post Office Overturned Convictions (OC) scheme.
Background to the measure
POL are making compensation payments to victims of the Horizon IT scandal, where POL accounting software errors resulted in under-reporting of takings, leading to POL incorrectly taking action against postmasters, in some cases resulting in criminal convictions. For those in the GLO without a Horizon related conviction on 22 March 2022 the government announced it would be giving similar compensation to those not in the GLO. This is an ex-gratia compensation scheme delivered by the Department for Business and Trade (DBT).
The Post Office Horizon Compensation and Infected Blood Interim Compensation Payment Schemes (Tax Exemptions and Relief) Regulations 2023 No. 184 were laid on 23 February 2023 and came into force on 16 March 2023. These regulations retrospectively relieved OC compensation payments (made on or after 22 July 2021) from IHT.
The government announced, via a Written Ministerial Statement on 29 June 2023, that in line with the treatment of compensation payments from the OC scheme, payments made under the HSS and GLO scheme would also be relieved from IHT. Additionally, the personal representatives of estates who did not previously receive IHT relief in relation to HSS and GLO scheme payments were advised to contact HMRC to claim a refund of any IHT overpaid.
This measure is retrospective to cover the period from when payments were first made under the HSS and GLO schemes to the time the legislation comes into force on 9 October 2023.
Detailed proposal
Operative date
This measure will have retrospective effect, from 1 May 2020 for payments under the HSS and 1 August 2022 for payments made under the GLO scheme.
Current law
Section 4 of the Inheritance Tax Act 1984 (IHTA 1984) imposes the charge to Inheritance Tax for transfers on death. Compensation payments, to the extent that they have not been spent during the deceased’s lifetime, are treated as part of the deceased’s estate on death which may be subject to IHT.
Schedule 15 of the Finance Act 2020 provides a power for HM Treasury to introduce secondary legislation through regulations to relieve qualifying compensation payments from tax.
Compensation payments made under the OC compensation scheme are relieved from IHT by virtue of The Post Office Horizon Compensation and Infected Blood Interim Compensation Payment Schemes (Tax Exemptions and Relief) Regulations 2023 No. 184 which came into force on 16 March 2023.
Proposed revisions
Using powers contained within Schedule 15 of the Finance Act 2020, HSS and GLO scheme compensation payments are relieved from IHT with retrospective effect.
Summary of impacts
Exchequer impact (£ million)
| 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 | 2028 to 2029 |
|---|---|---|---|---|---|
| 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 will impact the individuals in receipt of payments under the GLO and HSS compensation schemes and the beneficiaries of their estate on death by ensuring these payments receive relief from IHT.
Customer experience is expected to remain broadly the same, as the measure does not alter how individuals interact with HMRC. There is no impact on family formation, stability or breakdown from the changes to the IHT treatment of these payments.
Equalities impacts
This measure ensures clarity and certainty that Post Office HSS and GLO scheme compensation payments are relieved from IHT. It is not anticipated that there will be impacts on those in groups sharing protected characteristics.
Operational impact (£ million) (HMRC or other)
Relieving GLO and HSS compensation payments from IHT will create no additional costs for HMRC.
Other impacts
Other impacts have been considered and none have been identified
Monitoring and evaluation
There are no plans to review this measure. None of the 5 HMRC principles apply.
Further advice
If you have any questions about this change, contact Assets and Residence Policy Team on email: assetsresidencepolicy@hmrc.gov.uk.