Think Piece: Inheritance Tax

The main topic for this think piece is the matter of “compensation” payments for historic damages arising from contaminated NHS blood, and the possibility of these being seen as existing within the tax system, in particular being subject to Inheritance Tax. This matter has a degree of immediacy about it due to the prospect of interim payments.

First off, this writer is not a financial adviser; independent or otherwise. So, nothing in this piece should in any way be thought of as authoritative or as a statement of the law. However, these observations are drawn from listening to and speaking with people who are knowledgeable in tax affairs.

Currently, support scheme payments are described as "ex gratia". This term was used to allow some financial support to be offered in a way that did not mean the Government was admitting liability for negligence or some other failure which might attract a court-based damages claim. The ex gratia designation was in recognition of a "moral responsibility" only. There are established arrangements to ensure the existing scheme payments are discounted, or disregarded, for the purposes of both tax and welfare benefits. Sir Robert Francis reiterated their distinctness from compensation by asserting that any and all previously received ex gratia support payments from any of the existing or pre-existing schemes cannot be considered as a payment to account when calculating compensation payments under his proposed framework. In other words, if the money someone has received from schemes comes to say, £50,000 in total over the years, and then a compensation amount of say, £1million is worked out under a tariff-based or other system, then the total payable in compensation should still be £1million, and not £950,000 (ie. not £1million minus the £50,000). It is worth noting the inclusion in newspaper reports of there being efforts to ensure the interim payments are not subject to tax or benefits considerations, but these references are not at all specific enough for the reasons set out below.

As if the situation was not complicated enough, there is the matter of definition and semantics in the use of the word “compensation”. Compensation as accrued from court action is exempt from tax. That is well established. But in the case of historic “damages” payments for infected and affected people, the proposals set out by Sir Robert Francis exist outside of a courtroom. Unless someone insists on “having their day in court” (as is their right), his tariff-based system removes the need for the adversarial contest before a judge. Rather, his is a way of avoiding the traumatic rough and tumble of argument and counter-argument, with opposing expert clinician witnesses discussing in public the fine details of just how badly, or not, a person has been detrimented. That retraumatising form of disputed assessment is what the great majority of people say they want to avoid. In fact, the great majority want to avoid as much assessment as possible. People are sick and tired of being asked again and again to justify their eligibility for payments. And they don’t want to rely on a doctor’s opinion to be the crucial factor to swaying a decision. This concept went so far in Scotland that it resulted in the now established process of self-declaration on how badly impacted a person is, with the level of regular payments being based on that self-declaration.

So, if the interim payments and eventually the final settlements under the Compensation Framework are not actually “Compensation” as understood from a legal, courtroom perspective, what are they? Is it even helpful or appropriate to use the “C” word? There are alternatives to describing an award of money for historic losses, or damages, or harms, as well as the interest these may attract – and it is not simply a matter of saying “compensation with a small c”. The options for replacement terminology are only a Thesaurus away: redress, recompense, reparation, and other words which don’t necessarily start re-something. How important is it, perhaps symbolically or actually, to call the payments Compensation? Is it worth dying in a ditch(-ionary) over?

Well, beyond how precious someone might be about hearing the words, “Here is your compensation”, is knowing how much of it they get to hold on to. The Revenue is not renown for being influenced by a sob-story (as they might see it). The Infected Blood Inquiry has reiterated the mantra “Words matter”, especially when these words have significant consequences. As a quote-bending bard might say, “To compensay, or not to compensay, that is the question”.

Up to this point the issue has related to payments going to a living person. Hopefully, the media mentions of ongoing work to exclude recipients from being liable for tax or benefit reductions does result in that particular gateway to unfairness being well and truly closed off. It would mean that the easy bit was done and dusted, … well, an easier bit.

Inheritance Tax is a whole other matter. This sub-set of the topic may not seem too readily relevant given the current threshold of £325,000 before Inheritance Tax kicks in. However, there are potentially scary scenarios when factors such as giving money as “gifts” to family members if, as it may sadly happen, the giver dies within seven years of gifting. If the powers that be deem a gift to be some kind of pre-emptive inheritance payment, then limitations such as “anything over £3,000” come into play. That could get really messy if an amount was given in good faith to help with a deposit on the gifted person buying a house, and then after a few years have passed, the Taxman or woman comes calling with a demand for their rightful cut. And be under no illusion, HMRC Inheritance Taxers like to slice thick, as in 40% thick. Just because an arrangement was put in place for the originally eligible person to be exempt from personal tax for a compensation / recompense / redress / reparation (whatever) payment, it is by no means automatic for such a mechanism to apply to an inheritance amount. It would be a new kind of nauseating cruelty if, after all these years, the long-overdue monies fall to an estate (because the State achieved its aim of delaying until so few were left alive) and then that estate has to hand the Government back 40% of what was passed on. The £325k threshold may fly over the top of any £100k (or a bit more) interim payment – so long as the total of the estate is under the threshold when the £100k is included – but the long-game strategy should be to prepare for a potential assault on the full settlement amount, which for some might easily exceed the ceiling of an Inheritance Tax raid on re-allocated recompenses.

The only sure way of protecting amounts of money which were originally paid out as compensation (sic) is to create a new law for this specific purpose. In Taxperson terminology, a new “Statutory Instrument” is required. Not only that, but to avoid the delayed deception of the Government clawing back 40% of any hard-won payments, that new piece of legislation has to be applied “retroactively”. The aim would be to entirely remove payments from the tax sphere, for the living infected and the remaining inheritors. Of course, it is easy to imagine how the motivation levels of the Government to act on this might be low. It may require pressure from the Inquiry at one side and campaigners with the media and their political representatives at the other side. Ok, perhaps this is all an unnecessary worry, and the Government will sort it in the interests of the contaminated community with all haste. But experience, especially long and indelibly engraved experience, is hard to ignore. The apprehension is appropriate.

The inherent intricacies which are interwoven through this taxing topic surely strengthen the call for people to have access to independent financial advice. In fact, it will likely be necessary to ensure that such advice comes not from a bog-standard independent financial adviser, but from someone (or ones) who understand the issues related to the whole Contaminated Blood Scandal and the unique nuances of “compensation” under these circumstances. Not everyone will need or want this form of advice, but there are many in the community who have never seen a six-figure sum sitting on their bank statement and would require some professional help to handle it in ways which maintain their security and maximise the payment value going forward. It should go without saying that access to this specialist advice must be paid for separately by the Government (ie. not out of each person’s £100,000 or more amount). Hmmm … it “should” go without saying, but remembering who it would be being said to, saying and even getting it in writing is exactly what is required. For the avoidance of doubt, some people will need access to paid-for independent financial advice and the payer for that advice must be the State.

Now, at the risk of breaking the first rule of think pieces (stick to one topic), there is a further issue related to the anticipated recipients of payments, specifically the non-infected ones. Applying the principle of acting swiftly by focusing only on those already registered as the justification for setting up the Sir Robert Francis study (ie. so as to be ready to press the start button from Day 1), then surely it is only right and fair to begin now to pre-register the groups of people so far excluded. Perhaps running alongside any preparatory activity could be a not too far distant deadline date for the full new scheme going live to include them, or if it is not ready by that deadline date then a second round of interim payments for parents and children could kick-in since there is already an easy justification for acting swiftly from both the logic in the Sir Robert Francis Report and the Sir Brian Langstaff’s Interim Report on interim payments. Starting to get people enrolled would not be the administrative armadillo some people want to suggest. If the Government believe their own reasoning for starting early on a framework and for justifying interim payments now, that same reasoning has to apply to the affected who have thus far been excluded from everything. Rocket science it is not.

A final thought. If a detectorist was on the lookout for nuggets of a gold-standard “divide and conquer strategy” being applied by Governments, then the history of the Contaminated Blood Scandal is a veritable treasure trove. The metal detector could easily overload and short-circuit. This Machiavellian playbook dark art has been “nurtured” to drive a wedge between campaigners, between support groups, between bleeding disorder and whole blood peoples, between HIV and HCV, between Stage 1 and Stage 2, between the UK and the devolved administrations, and still more dimensions of useful differentiation to be exploited. The latest playing field appears to be the interim payments pitch. The created conflict is one of the most malevolent because it could be seen as setting the deserving living against the deserving dead. Could they be that wicked?

The glue to hold interim payments together has not yet been applied. The foundations of the as-yet un-worded payment framework have not been poured. So, before these structures are set in stone, the devilish detail of tax liability, personal and inheritance, must be removed from the mixer and banished from use like a sheet of flammable cladding. Every payment pound to an infected or affected person must be kept at least 100,000 miles away from any type of tax take.