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Killed in War Exemption

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How claiming a complete exemption from Inheritance Tax for the estates of deceased war veterans can be relatively straightforward and extremely rewarding for clients.  Sharon Richardson of Crombie Wilkinson Solicitors reports...

I recently completed the administration of an estate of an elderly gentleman who had a significant estate (circa £1million) and an Inheritance Tax liability of approximately £275000.  During the course of a conversation I had with one of the Executors and Beneficiaries about the deceased’s earlier life my ears pricked up when I heard that the deceased had been injured during the D-Day landings and had suffered from associated ill health since those injuries occurred.  His main injuries were shrapnel wound to his chest and a blast injury to both ears. He had been in receipt of a War Pension which was paid on the basis of those injuries.

Only a few months before this meeting with my clients I had attended a Course conducted by Lesley King from The College of Law.  Mrs King had mentioned a case involving an estate in the South West where a more significant Inheritance Tax liability had been reduced to nil.  The Solicitors for the Executors had successfully claimed the “killed in war exemption” for a second-world war veteran who had also suffered injuries which they were able to link to his death more than 60 years later. The case was unreported in the legal press but had been spotted by Mrs King in a local newspaper in the South West.  Had this report not been fresh in my mind I doubt whether I would have even thought of it as a possibility. The exemption does seem to be little known of and is certainly not a claim most Estate practitioners would think to make.

With this information fresh in my mind I thought I would look into it.  The death certificate showed that the deceased’s death had been caused by a disease of the lungs.   My initial thoughts were that the chest injury may have been a contributing factor to the disease suffered.  Whilst I am not a medical professional I thought there might be a sufficient link to at least consider making this claim. 

I then approached the Executors who authorised me to look into it further.  This involved applying for the deceased’s post mortem report.  We then submitted the report and various other documents with a covering letter explaining the claim we were making to the Service Personnel & Veterans Agency Joint Casualty & Compassionate Centre Deceased Estates Office (SPVA) in Gloucester.  The other documentation included a copy of his Death Certificate, correspondence from 1944 about his injuries, other papers from the 1940s which might have assisted and papers in relation to his claim for a War Pension.

The estate was then administered in the usual way. A large bank transfer was made to the HMRC for the Inheritance liability which, on the face of it, was still payable. A Grant of Probate was issued and we commenced collecting in the deceased’s remaining assets.

In the meantime the Executors gave authority for the medical records to be released to the SPVA and after a few months and a very small amount of chasing a certificate for full exemption was issued.  This was then forwarded to HMRC and fairly soon thereafter a full refund was issued. 

The “Killed in War Exemption” can be found in section 154 of the Inheritance Act 1984.  Provided the deceased person was a member of the armed forces and their death was caused by injury or disease received or aggravated while they were on active service then the exemption will apply.

The main case that considers the exemption is that of Barty-King and another v. Ministry of Defence [1979] 2 All ER 80 which was decided in accordance with an earlier piece of legislation namely section 71(1) of the Finance Act 1952.

In this case the deceased sustained an injury in 1944 whilst he was on active duty with the armed forces against the enemy. Twenty three years later in 1967 he died of cancer.  The Executors applied for a certificate that confirmed the deceased died from a wound inflicted when he was on active service against the enemy so that they could claim an exemption from estate duty.

The Executors claimed that the wound caused the cancer and that the cancer was the direct cause of death and therefore the exemption should be allowed. The initial claim was refused by the Defence Council on four occasions.  On the final refusal the Defence Council refused on the basis of an incorrect construction of section 71(1).  Their determination confirmed that the section provided that a claim could only succeed where there was a direct causal connection between the wound and death.  The Council went on to say that section 71(1) did not cover a death, which albeit took place sooner than it might have done in consequence of the wound, which was not directly caused by the wound and where, on the balance of probabilities, it could not be said (in the present state of medical knowledge) that the wound had caused the cancer which was the cause of death.

The Executors brought an action against the Ministry of Defence on the basis that this decision was incorrect.  The Court determined that on a true construction of section 71(1) of the 1952 Act a person died from a wound if in consequence of the wound he died earlier than he would have done had he not sustained the wound.  The Court went on to say that this would be the case even if the wound was not the direct or ascertainable cause of death.  Mr Justice May held that the correct question was whether the wound was a cause of the deceased’s death, and not whether the wound was a direct cause of the death. The certificate was therefore granted.

Take care however as the exemption only relates to the Inheritance that is payable on the free estate of the deceased and does not extend to any other tax payable as a result of the death. It therefore does not apply to any Inheritance tax payable on a failed potentially exempt transfer or the further 20% Inheritance Tax payable on Lifetime Chargeable Transfers which were made in the seven years before the deceased’s death.

Please also consider how the exemption might apply in the context of the transferrable nil rate band legislation.  In a case reported here in York, where I practice, a Solicitor brought a claim for the exemption to apply in relation to an estate where the husband died in 1943. His widow subsequently died more than 65 years later. 
In this case the widow would not normally have been allowed to claim the transferrable nil rate band of her late husband because the available nil rate band in 1943 was only £100. The estate was worth £700 at the time and no spouse exemption was available. However because the claim for “killed in war exemption” was successful, the available nil rate band rose to £5,000.  As the husband’s estate was valued at under £700, the deceased had only used 14% of his nil rate band and therefore his widow received an additional 86% of a nil rate band to apply against her estate on her death.

Given the above examples you should consider this issue when you are dealing with an estate.  You may find yourself with some very disgruntled beneficiaries if you do not at the very least look think about whether it is appropriate to claim. 

The process of claiming the exemption I found was relatively straightforward and did not take as long as I had feared it would.  This may have been an obvious case for exemption because of the medical evidence concerned but even if you are not sure whether there is a link please do not dismiss trying to claim the exemption because the death occurred so long after the injury was sustained.

The successful outcome delighted my client and would have, in the words of the Executor, been something the deceased would have enjoyed considerably. Saving £275000 of Inheritance Tax is something that most people would be happy to spend a little time and a relatively small amount of fees on.  Please do therefore consider this whenever you are dealing with an estate of a person who suffered injuries during active service.  On a practical level perhaps you should ask the deceased’s family for some background information about the deceased’s life during your first meeting with them.

Perhaps then your clients will be as happy with you as my clients were with me in this case.

This article was written by Sharon Richardson, a Director at the York office of Solicitors firm Crombie Wilkinson Solicitors LLP Please do not hesitate to contact Sharon for more information on 01904 624185.