Compensation and IHT

I have an estate where a compensation has been awarded after two years of dealing with the estate. It was not known as to whether or not the claim would be successful and it was based on a death due to asbestosis. The award has been paid 3 years after death and I would like to know the following (as the IHT office are very slow in getting back to me) :-

(a) whether IHT would be payable due to the fact that the deceased died because of the asbestosis disease.
(b) the beneficiary wishes to vary the compensation to a cancer charity. As the variation would be over 2 years after death whether there was anything I could do to get any relief of any kind for IHT.

Thanks Lisa

HMRC Trust & Estate Newsletter August 2013 has some commentary on IHT and compensation payments. It seems the right to pursue a claim for compensation is an item of property and therefore an asset of the estate.

IHTA 184 s142 limit of two years leaves no discretion for HMRC to extend it.

Malcolm Finney

My understanding is that if claiming against a former employer for an asbestos related death, there may be little likelihood that the employer (or employers) can avoid liability. It is therefore likely that you would need to negotiate with HMRC to agree the value of the claim as at the date of death.

As Malcolm points out, s.142 IHTA does not give HMRC any discretion to extend the 2 year period, so that the suggested variation will not attract charity relief for IHT. However, the beneficiary would be able to claim gift aid on the donation to mitigate the situation. If the beneficiary has insufficient taxed income in a single tax year to cover the tax, the donations could be spread over a number of years. However, it may be the case of how quickly the beneficiary wants to pass the money to the charity.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

Have you looked at IHTM10263 - Inheritance Tax Manual (IHTM10263 - Inheritance Tax Manual - HMRC internal manual - GOV.UK)? That may help answer (a).