Infected blood compensation payments exempted from tax

Significant developments have beenannounced regarding the compensation payments linked to the infected blood scandal, following the Autumn Budget. STEP, the professional body for trust and estate practitioners, along with the Association of Lifetime Lawyers, expressed their relief over the news that these compensation payments will no longer be subject to inheritance tax (IHT). This exemption means that families of those affected, including both survivors and deceased victims, can receive compensation without the burden of a 40% tax.

During the Budget announcement, the Rt Hon Rachel Reeves MP stated: "I will exempt all payments from the Infected Blood scheme from inheritance tax regardless of the circumstances in which those payments are passed down.” This announcement comes after a long-standing issue regarding the "secondary transfer" flaw, which had resulted in unfair taxation of compensation payments made to the estates of deceased victims.

Emily Deane TEP, Technical Counsel and Head of Government Affairs at STEP, remarked: ‘We are hugely relieved that the Rt Hon Rachel Reeves MP has compassionately addressed the critical ‘secondary transfer’ flaw in the Autumn Budget. The government has listened and are doing the right thing. Bereaved families of victims of the infected blood scandal should never have been put in this position. We thank all the victims and the families who campaigned for this outcome, and shared their voices to ensure that they and other victims will now receive their full and rightful compensation.’

The scandal, which affected over 30,000 individuals in the UK, resulted in more than 3,000 fatalities due to contaminated blood products in the 1970s and 1980s. Many families were left grappling with the implications of inheritance tax on compensation payments, effectively compounding their grief. Jade Gani TEP, Chair of the Association of Lifetime Lawyers, stated: ‘This news will bring much needed relief to victims and their families. If a victim who is alive can leave their compensation to their children or other beneficiaries without paying IHT, then the children or spouses of those who have already died should also be able to receive their inheritance without tax.'

The exemptions will provide immediate relief, allowing for an 'IHT credit' that enables beneficiaries to pass on the value of the compensation without incurring any tax charge after their own demise. Furthermore, it allows the first living recipients an opportunity to gift some or all of their compensation without tax for a period of two years beginning on 4 December 2025. This new measure represents a significant step towards rectifying a longstanding injustice for those affected by the scandal and acknowledges the efforts of advocates who have tirelessly fought for change.

Both STEP and the Association of Lifetime Lawyers actively engaged with HMRC regarding the "secondary transfer" issue, and their advocacy culminated in delivering an open letter to the Chancellor of the Exchequer urging an urgent legislative fix. The recent announcements from HMRC confirmed the government's commitment to addressing the crisis, with upcoming legislation anticipated in the forthcoming Finance Bill to formalise these changes.