IHTM10260 - Compensation Payments: General

Where compensation is received after the date of death, there can be uncertainty over the value, if any, that should be included in a person’s estate for inheritance tax purposes. The right to pursue a claim for compensation is an item of property. If the right existed before the death then it is an asset of the estate.

The open market value of the right at the date of death depends on several factors, but is fundamentally down to what was known, or capable of being known, at the date of death about:

• the amount of compensation that might be reasonably anticipated based on the information available

• the likelihood of the claim being successful

• the likely costs that would be expected to be incurred in obtaining a successful outcome
• the time delay between the date of death and the date when the compensation might reasonably be expected to be made.

The right to pursue a claim can be valuable whether or not the individual entitled to make the claim was aware of this right, provided that the information was capable of being known at the relevant date. The valuation of compensation claims is dealt with by the Actuarial Team.

Where personal representatives are aware of a potential claim at the date of death, they should record the existence of the claim on form IHT400 and provide as much information about the claim as they can. They should include a reasoned estimate of the open market value of the right to pursue the compensation where they are able to do so.

Details on particular forms of compensation are set out in the following guidance.