Proper Help for Heroes
When you are talking to a client about planning legacies, is the first question you ask, 'Have you had military service?' If not, it should be from now on.
November 2018 will be the centenary of the end of the First World War. It is therefore fitting to now highlight a much overlooked IHT exemption within the tax code that benefits veterans and their families.
Section 154 of the Inheritance Tax Act of 1984 contains a provision that allows under certain circumstances servicemen or women complete exemption from IHT.
As well as death due to active service granting this exemption it also caters for service personnel who were disabled, wounded or contracted an illness whilst in the forces. If at any time in the future their death is deemed to have been due to or aggravated by a wound or illness they will become exempt from IHT.
This exemption has to be applied for and a good indicator that the individual may qualify is that they are likely to be in receipt of a War Pension for wounds, disablements and illnesses sustained say from World War Two, Korea or Malaya or more latterly a Guaranteed Income Payment (GIP) having been invalided out of the forces as a result of service in Northern Ireland, The Falklands, Iraq and Afghanistan.
Certainly, including World War Two and all the wars since then, this exemption could apply to tens of thousands of ex service personnel. One only has to see the Invictus Games to realise how many this affects as a consequence of combat and active service. It is probably far more common than you think. I have two family members who qualify and receive invalidity pensions, one from WW2 in Burma and one after three tours in Afghanistan. Even at the age of 96 my Uncle is exempt, there is no time limitation.
So, if any of your clients in particular are contemplating any IHT planning it will be worth asking if they have any previous military service bearing in mind a compulsory three years National Service in the forces didn't end until 1963. Lots of National Servicemen and women went to Malaya and other tropical climes and contracted malaria.
From a professionalism and risk management perspective, it would be problematical if you found out after the event your client was exempt from IHT.
Additionally, it creates some interesting estate planning scenarios if your client is likely to be exempt. If the ex-service persons estate is exempt on their death, on the death of their spouse with the advent of the nil rate personal band being able to be transferred, it means that two nil rate bands will be available before tax is levied. Any elderly ladies might well be in this position.
Also, if a family can establish that IHT tax was levied when it shouldn't have been, they can reclaim it.
The value of estates has risen significantly with the rise in home ownership over the years, putting a lot of estates beyond the IHT thresholds. I wonder how many of your clients could benefit from knowing this and gaining your advice.