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Infected Blood Scandal and IHT treatment following the recent Budget
Sameena Munir
While the Autumn Budget brought tax rises and gloom for some, it delivered relief and comfort to the victims and families of the Infected Blood Scandal, as the Chancellor Rachel Reeves announced that she would “exempt all payments from the Infected Blood scheme from inheritance tax (‘IHT’) regardless of the circumstances in which those payments are passed down”. This decision finally resolves a longstanding technical ‘secondary transfer’ flaw that had created a secondary injustice for affected families. The changes ensure that compensation awarded for a public failure will no longer be diminished by unfair taxation.
What was the Infected Blood Scandal?
The Infected Blood Scandal was a major public health disaster which occurred in the UK during the 1970s–1990s, in which thousands of people, including children, were given blood that was contaminated with HIV and Hepatitis C. Around 30,000 were infected as a result and more than 3,000 have since died from AIDS-related illnesses or liver failure.
A statutory public inquiry began in 2018, with a final report published in 2024. The report concluded that “the disaster was not an accident” but rather the result of systemic failures and negligence. The inquiry recommended comprehensive compensation be provided both to victims and their families, with payments covering physical injury, psychological harm, stigma, loss of earnings and family impact.
The government set aside £11.8 billion for compensation. Interim payments were issued to many survivors and families in 2022, and the official Infected Blood Compensation Schemes came into force on 23 August 2024.
What is the usual IHT treatment of estates and lifetime gifts?
The usual IHT rate is 40%. This tax applies on death to an individual’s estate exceeding the nil-rate band (‘NRB’ currently £325,000 less any gifts made in the seven years preceding death), subject to available exemptions and reliefs.
Lifetime gifts made to an individual can also be subject to IHT. Gifts made to an individual directly, rather than into a trust, are considered potentially exempt transfers ‘(PETs’). This means that they are immediately tax free but, if the donor dies within 7 years of making the gift, any value of the gift above the NRB becomes chargeable at 40%.
How were Infected Blood compensations treated before the Budget?
Prior to the Budget, if an infected or affected person had already died at the time compensation was paid, this payment could instead be made to a living recipient (for example, the infected person’s spouse) free from IHT. Issues arose, however, when that recipient later passed away, as they were not entitled to the same IHT relief. This technical flaw, known as the ‘secondary transfer’ issue, meant that compensation was treated as part of the recipient’s estate and taxed on death. The result was harsh, as compensation payments intended to remedy injustice were instead significantly reduced by taxation when passed on to surviving relatives.
What is the new IHT position for Infected Blood compensation payments?
The Autumn Budget reforms ensure that compensation payments will benefit from IHT relief even when the original infected or affected person had already died before payment was made. In these cases, the first living recipient(s) will be given an IHT ‘credit’, meaning that when they die, the value of compensation they received will not incur IHT. Similarly, the recipient(s) have a two-year window in which to gift some or all of the compensation to others without it being treated as a PET and triggering an IHT charge if they die within 7 years of making the gift. The changes introduce fairness and flexibility for the families of deceased victims, allowing them to benefit fully from the compensation without facing heavy tax bills.
Where does the line stop with IHT exemption for compensation awards?
While this announcement is a win for the victims of the Infected Blood Scandal, it leaves questions about the IHT treatment of other compensation awards. For example, will a similar tax credit apply to compensation under the Horizon Post Office Scandal, given that many sub-postmasters died before their claims were finalised? Would it apply to compensation received from the Windrush Scandal? There is currently no clear guidance that suggests the first living recipient(s) in these cases will benefit from an IHT ‘credit’, putting them at risk of the ‘secondary transfer’ issue.
Additionally, no IHT reliefs are currently available for clinical negligence or personal injury compensation payments, with these damages included in a victim’s estate for IHT purposes on their death. Why should individual cases of negligence be treated differently to larger institutional cases of negligence?
Overall, the announcement in the Autumn Budget regarding IHT and the Infected Blood Scandal Payments is positive, demonstrating that the government is willing to address secondary injustices and to ensure compensatory payments are fair and just. However, perhaps there is room for further reform, widening the application of IHT credits to include other compensation schemes and awards.
Making gifts and providing for others’ needs – OPG guidance
Making gifts on behalf of a protected party (“P”) can be seen as carrying out their wishes and feelings and/or helping a person closely connected or related to them. However, an attorney/deputy has specific powers which do not extend to making all types of gifts unless authorised by the Court of Protection. If an unauthorised gift is made, the attorney/deputy may face severe penalties including removal of their role, order to immediately return the funds/gift or referral to the police. It is important therefore that the correct procedure is followed before making a gift. The Office of the Public Guardian (“OPG”) recently issued updated guidance about making gifts, which we consider in this blog. The guidance applies to both attorneys and deputies. Reference to deputies in this blog also includes attorneys.
Capacity to enter into a prenuptial agreement
In this blog we consider whether a pre-nuptial agreement is a good option to help protect the estates of vulnerable individuals in the event that their marriage should come to an end.
Empowering entrepreneurship – a young man with cerebral palsy and his journey to business ownership
This case study highlights the inspiring journey of a young man, Louis who was born with cerebral palsy (CP) and with the support of his Deputy, Deputyship team and family has transformed his passion for dogs into a small business, overcoming numerous challenges and creating a successful venture. His story not only exemplifies the power of perseverance and support but also showcases how individuals with disabilities can thrive in the business world with the right resources and mindset.
Action for Brain Injury Week – fluctuating capacity
The Child Brain Injury Trust reports that every 90 seconds, someone in the UK is admitted to hospital with an acquired brain injury, and every 15 minutes, a child in the UK acquires a brain injury. While many will make a full recovery, for others, this may impact on their ability to make certain decisions as adults.
Capacity to make a Will (“Testamentary Capacity”)
For a Will to be valid, amongst other things, the person making the Will (known as the “testator”) must be of “sound mind”.
Capacity to marry and make a prenuptial agreement
The test for capacity to enter a prenuptial agreement is the same as the normal test for capacity (mentioned in Blog 1) and the individual must be capable of understanding their assets and the nature and effects of the contract they are entering into.
Capacity to act as an executor
An executor/executrix is a person named in a Will who is responsible for carrying out the instructions in a person's Will and administering their estate. Executors can have a number of responsibilities following someone’s death, including: securing, insuring and clearing the deceased’s property, collecting in all the deceased’s assets, paying outstanding bills, distributing the estate, arranging the funeral and applying for probate.
Capacity to act as a trustee
When a trust is created, the person setting-up the trust (known as the “settlor”) usually appoints trustees who become the legal owners of the assets in the trust, which they hold for the benefit of others (known as the “beneficiaries”). For example, when a person dies, a trustee may distribute capital and income from the deceased’s assets that are held in a Will trust, to the people named as beneficiaries in the deceased’s Will.
Capacity to litigate
Capacity to litigate involves an adult who is a party (or intended party) to proceedings in court.
Capacity to make a Lasting Power of Attorney
A Lasting Power of Attorney (“LPA”) is a formal document that, once registered by the Office of the Public Guardian (“OPG”) authorises others, known as “attorneys”, to act on behalf of another who is unable to make decisions for themselves.
Capacity to make a gift
A gift can be anything of value, such as cash, personal possessions and property. If a person chooses to dispose of an asset for less than it is worth this is also considered to be a fit. The act of giving a gift is typically done to express care, appreciation, celebration or goodwill. Gifts are often exchanged during special occasions such as birthdays, weddings, anniversaries and customary occasions, but they can also be given spontaneously as a gesture of kindness or generosity.
Capacity to manage property and financial affairs
An assessment to determine whether an individual has capacity to manage their property and financial affairs is required when an individual’s capacity is in doubt and they need to make decisions relating to their property and finances. For example, they may want to sell or purchase a property, need to manage an award of damages or need to manage their overall affairs.
If my mother moves into a care home, does she have to sell her house to fund her care if I’ve lived with her my whole life?
The question of how care for a parent is funded can be a pressing one that has the potential to cause stress and concern.
Lay deputy blog series: I am a deputy - where do I start? Things not to do
Now you have an idea of the full scope of your role as deputy, here are a few cautionary comments based on our years of experience of working within the field of Court of Protection.
Lay deputy blog series: I am a deputy - where do I start? The Gifting guide
It is not unreasonable for gifts to be made to those close to the Protected Party ("P") during their life time and this can be in a number of ways, whether this be customary, practical or just a one-off gesture.
Lay deputy blog series: I am a deputy - where do I start? Buying and selling property
Buying and selling property is one of the biggest tasks a deputy may be faced with whilst managing the Protected Party’s (‘P’) affairs. The selling of a property may be the only way to access funds that are so desperately needed to pay for P’s ongoing expenses. P may be downsizing and both the sale and purchase of a property may be required. P may need to purchase a more suitable property for their needs as their condition evolves. The property may not only be for P but for partners, children, other family members, carer’s and those involved in P’s daily lives.
Lay deputy blog series: I am a deputy - where do I start? Potential pitfalls
If P owns a property, there are a number of additional factors to consider and matters that may arise throughout the management of the deputyship.
Lay deputy blog series: I am a deputy - where do I start? Looking to the future
In additional to the initial set up tasks and ongoing annual requirements, a deputy may want to consider the bigger picture to ensure P’s ‘estate’ (essentially everything that they legally own; including cash, property, land, investments etc.)
Lay deputy blog series: I am a deputy - where do I start? First steps
Your application to be a deputy is successful and you have now received the final Order from the Court of Protection (“COP”) appointing you as such. You have/have been provided with a catalogue of documents and financial paperwork; or you may have been provided with nothing at all. You may have already been contacted by various organisations asking for information, or even payment for services. One of the first questions that I am sure may be crossing your mind - where do I start?
Lay deputy blog series: I am a deputy - where do I start? The difference between property and affairs and health and welfare
Firstly, I must point out that there are two types of deputyship. The distinction between them is important as there are clear rules as to the decisions that can be made under each.
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