Infected blood victims face 40pc death tax bills

Telegraph

18-04-2025

Families of infected blood scandal victims are facing huge inheritance tax bills despite promises that the compensation would be tax-free.
The Government set aside £11.8bn for the infected blood scandal, in which 30,000 people contracted HIV and hepatitis C through contaminated blood products in the 1970s and 1980s.
Bereaved families were told the payments would be exempt from income tax, capital gains tax and inheritance tax.
But many could still end up losing 40pc of their compensation to the tax office because the exemption only applies to the first time the compensation is inherited.
For example, someone could pass on their compensation to a beneficiary after death without incurring an inheritance tax charge.
However, the Government has taken so long to pay compensation that many of these bereaved relatives are now in their later years. This means they risk leaving their families with a huge inheritance tax bill if they die soon after the payment is made.
At least 3,000 people died after being infected with HIV and hepatitis, leaving behind parents, siblings and partners.
'Affected persons' such as bereaved relatives can also receive compensation in their own right. The amount of compensation owed to an 'affected person', like the relative of a victim, is generally much lower than the amount they could inherit from the estate of an infected person. These payments are likely to be over £1m.
The Telegraph spoke to one woman in her late 60s with multiple health problems. Her brother died in the 1990s after contracting HIV through tainted blood products. She is set to receive at least £1m in compensation from his estate.
But her family could end up losing £400,000 of this if she passes away soon after the payment is made.
'It destroyed my life as well'
She said: 'This is so completely morally wrong. Because of the length of time it's taken to get compensation, there are so many people in the same position as me who will be hit with inheritance tax.'
She said her brother's illness and death had a profound impact on the family.
'My mother and I cared for him for 14 years. He required 24-hour care. I had no relationships during that time. It destroyed my life as well.
'I just want to get the full amount of money owed to him and pass it on to the next generation – my nieces and nephews.'
Adam Fleming, of BTMK Solicitors, said: 'Many of the families that I have spoken to have waited for decades to receive any form of compensation for the losses they suffered as a result of this scandal. That means many of those who stand to receive the compensation are now themselves in the later years of their lives.'
This means they could receive the compensation shortly before their death, only for it to be taxed by the Government.
He added: 'The Government does not appear to have considered this, or to have considered this to be unfair in any way. If you take an example of an elderly widow now finally receiving compensation for the death of her husband in the 1990s but passing away shortly thereafter, then potentially up to 40pc of that compensation could have to be paid back to the Government.'
'The children are victims too'
Labour MP Leigh Ingham has raised the inheritance tax issue in Parliament and asked if a solution can be found for these families.
She said in February: 'In Stafford, Eccleshall and the villages, I have a constituent, Janet, who is in her 80s. She tragically lost her first and second husband to infected blood, and she is due to receive compensation as their next of kin. She would like to ensure that she can pass the payments on to their children, who, as the Minister rightly said, are victims, too.
'However, she has been advised that if that happened, it would constitute a secondary transfer and be subject to inheritance tax. We are talking about people who lost their father and stepfather to this issue. Will he meet me to explore whether a solution can be found in these cases?'
Nick Thomas-Symonds, Paymaster General, said in response he would look into the constituent's case.
However James Murray, Exchequer Secretary to the Treasury, appeared to stand by the rules when asked about the same issue.
He said: 'This ensures victims receive full compensation without tax burdens whilst maintaining fairness in the tax system and protecting the public finances.'
'There's no forever exempt'
Des Collins, of Collins Solicitors, which has worked with victims of the infected blood scandal, said the Government had 'oversimplified' the tax position of the compensation.
'It's commonly referred to as exempt from inheritance tax. So that leads to a view being taken by individuals that it is going to be ring-fenced forever. But of course it's not – if there's a second transfer, inheritance tax bites.'
He continued: 'If you take financial advice you will be told this. But some elderly victims will think that it's forever exempt because it hasn't been fully explained to them.'
Inheritance tax is charged at 40pc on the value of an estate worth more than £325,000. Homeowners get an additional £175,000 allowance, and couples can share their allowance, allowing them to pass on up to £1m without incurring a tax bill.
The compensation payments due to families vary depending on several factors, but can be over £1m for the estates of those who died of HIV.
Recipients could give the money to their family during their lifetime. However lifetime gifts will usually be subject to the seven-year rule. This means if the person dies within seven years of making a large gift, it will still count as part of their estate for inheritance tax purposes.
The Infected Blood Inquiry is holding additional hearings next month amid growing concerns about the compensation scheme.
Campaigners have said the Government is taking too long to pay out compensation. The Infected Blood Compensation Authority said it aims to process the majority of infected individuals' claims by the end of 2027, and affected individuals' claims by the end of 2029.
The Telegraph recently reported that bereaved siblings and children risk missing out on the payments because the deceased either did not leave a will or wrote one decades ago before the compensation scheme came into being.
Mr Collins said this was just one of the 'endless problems' with the scheme that were beginning to emerge.
'The money ends up with someone who is not an appropriate recipient, such as the wayward son who will only gamble the money away, when the deceased would never have contemplated putting the money into that person's hands.'
He said this could result in a surge in so-called restitution claims as families take legal action in pursuit of their fair share. 'The Chancery will be log-jammed with them.'
A government spokesman said: 'The victims of this scandal have suffered unspeakably. After decades of delay, it has fallen to this government to act.
'We have paid over £44m so far in compensation, over a billion pounds in interim payments, and set aside £11.8bn to compensate victims.
'While no amount of compensation will make up for the suffering people have endured, we are committed to delivering compensation as swiftly as possible.'