Inheritance tax on a medical negligence claim

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Hello, 

Recently me and my family won a medical negligence claim against the nhs for my grandmother of £17000.

Do we pay inhertitance tax on this sum or is it not taxed as it was won after her death.

( we are above the £325000 tax so we pay 40% if that makes a difference)

Thanks

Replies (5)

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By Accountant A
27th Dec 2018 23:15

Ask the person who dealt with your grandmother's estate.

Thanks (1)
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By Tax Dragon
28th Dec 2018 09:30

linquist wrote:

Do we pay inhertitance tax on this sum or is it not taxed as it was won after her death.

The answer is neither. Assuming that AA is right and it was an action by or on behalf of your grandmother's PRs, there was an asset in her IHT Estate at the date of her death. But that asset wasn't £17,000.

If that's right, then AA's conclusion - it's the PRs' issue not yours - is also correct. The money is theirs to distribute and the issue theirs to resolve.

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Replying to Tax Dragon:
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By Accountant A
28th Dec 2018 11:46

Tax Dragon wrote:

Assuming that AA is right

The executor needs to know about all the assets comprising the grandmother's estate so alerting them should resolve. If the executor says that it's not an estate asset, presumably no IHT. If it is, then IHT due and, as you say, net proceeds distributed in accordance with the will.

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By Montrose
28th Dec 2018 17:33

The answer is more complicated. What was the value of the claim at the date of death?. There was clearly no certainty that it would be paid, so for IHT a substantial discount to the finally paid sum would be appropriate.

The difference between that discounted value and the sum finally paid is a chargeable gain arising to the Executors. The good news is that TCGA s51, together with ESC D33 should exempt that gain from CGT in the executor's hands.

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Replying to Montrose:
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By Tax Dragon
28th Dec 2018 17:51

Except you don't start with the final figure and work backwards. If you were going to do that, you would have to start from the certainty of it having been paid. But yes, this is (partly) what I was getting at in my initial reply.

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