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HMRC internal manual

Inheritance Tax Manual

Death of armed forces or emergency service personnel: effect of the exemptions

For deaths on or after 19 March 2014 the exemption, under IHTA84/S153A(2), S154(1A) or S155A(3), applies to

  • any potentially exempt transfers (IHTM04057) made within 7 years of death.  By virtue of relevant sub-section (a), potentially exempt transfers (PETs) do not become chargeable transfers under IHTA84/S3A(4) as a result of the death,
  • the estate (IHTM04029) on death.  The relevant sub-section (b) disapplies IHTA84/S4 and so no charge to tax can arise on the estate passing on death,
  • any additional tax that arises on an immediately chargeable transfer (IHTM04067) made within 7 years of death.  By virtue of relevant sub-section (c) no additional tax under IHTA84/S7(4) is due.

So the only chargeable occasion to which an exemption does not apply is where a person makes a lifetime transfer which gives rise to an immediately chargeable transfer.  Tax at 20% is still payable where the nil-rate band is exceeded and any such tax paid in the lifetime is not repayable should an exemption apply on death.

Where the death is prior to 19 March 2014, exemption under IHTA84/S154 applies only to armed forces and civilians subject to service discipline and only to the estate passing on death; so PETs remain chargeable and any additional tax due on an immediately chargeable transfer remains payable.

The exemptions do not apply to any relevant property trust charges (IHTM42070) that may arise as a result of the death, nor do they apply to any Estate Duty payable where, as a result of a qualifying death, a reversionary interest falls into possession in the estate of another person (where the option to defer the payment of Estate Duty was taken).

There are, however, two situations (IHTM11307) in which settled property can be exempt from IHT by reference to the Estate Duty exemption for death on active service.