Inheritance Tax relief extended on compensation payments

Written by Jessica Bomford, November 26, 2025

Chancellor Rachel Reeves has exempted all payments from the Infected Blood Compensation Scheme from Inheritance Tax after it became clear that some payments would be taxed under the current rules.

Announcing the change in the Budget on 26 November, Ms Reeves said all infected blood compensation payments would be exempt from Inheritance Tax (IHT), ‘regardless of the circumstances in which those payments are passed down’.

This means that if the infected or affected person eligible for compensation has already died at the time compensation is paid, the estate of the first living recipient(s) of that payment will receive an ‘IHT credit’ to pass on the value of the compensation following their own death without an IHT charge. The change is effective immediately and can be applied retrospectively, including interim compensation payments. You can read more details here.

The announcement also means that the first living recipient(s) will also have two years in which to gift some or all of the compensation payment they receive without an IHT charge. The changes mean they will also be able to redirect their compensation if they wish to do so.

Although the changes are immediate, legislation will need to be passed next year to formalise the new tax rules.

We are very grateful to Sam Richards, a Chartered Financial Planner and the founder of Factor Financial Planning, who has worked so hard to get this tax anomaly into the public eye and addressed by government. Thanks also to Jade Gani, specialist lawyer and Chair of The Association of Lifetime Lawyers, who also highlighted this issue.