Budget 2020: Compensation payments exempt from inheritance tax.

Payments under various compensation schemes are to be exempted from inheritance tax (IHT) in the recipient’s estate.

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IHT relief will be available for payments made under the new Troubles Permanent Disablement Payment Scheme, the Windrush Compensation Scheme and from the Kindertransport Fund. Without this relief, the receipt of such compensation increases the value of the recipient’s estate subject to IHT, even where received after their death. These measures will reduce the IHT charged on the estate by the amount of tax otherwise due on the value of the compensation.

The relief covers not only payments received by a claimant during their lifetime but also amounts received after their death by their personal representatives or heirs. It is to be applied retrospectively, with Kindertransport Fund payments exempted for deaths after 31 December 2018 and Windrush Compensations Scheme payments exempted for deaths after 2 April 2019.  

The Troubles Permanent Disablement Payment Scheme is to be introduced in May 2020 to support those injured in the Northern Ireland Troubles. Payments received under the scheme will be exempted from IHT for deaths after 28 May 2020.

What should you do?

Recipients of such compensation should ensure that they keep a record of the amounts they receive, so that their Executors can claim the appropriate relief on their death.

Read more on the Budget here.

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