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HMRC internal manual

Inheritance Tax Manual

Compensation payments: compensation payments under the Law Reform (Miscellaneous Provisions) Act 1934

This instruction applies to England and Wales only.

The right of a deceased person’s personal representatives to compensation under this Act is an asset of the estate for the purposes of Inheritance Tax, IHTA84/S171.

In the case of death on or after 1 January 1983, damages where the death was instantaneous will normally be limited to a sum in respect of funeral expenses. This follows an amendment introduced by the Administration of Justice Act 1982. Where the death was not instantaneous there might also be damages for pain and suffering, including any suffering caused by the injured person’s awareness that the expectation of life had been shortened.

You should refer to the Technical any case in which damages are payable under the Law Reform (Miscellaneous Provisions) Act 1934 where the taxpayers request

  • some discount from the amount received
  • deduction of actual out of pocket expenses, or
  • that no interest should be charged on the tax payable.