Inheritance tax on Military Medals

[George Wallace]

This may be cause for the need of a WTF forum on the British military:

Reproduced under the Fair Dealings provisions of the Copyright Act.

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'I was told to pay death duty on Dad's medals'

THE TELEGRAPH
By Rod Gilchrist
10:40AM BST    21 Aug 2014

Like most old soldiers, my father Jim would never talk about the horrors he witnessed in the Second World War. He served as a signals officer with the Royal Navy on convoy duty in the treacherous waters of the north Atlantic, on the bridge of the admiral’s flagship on D-Day, and in operations to search and destroy enemy submarines in the Indian Ocean and off the west coast of Africa. It was dangerous work, and the sight of men drowning in torpedo oil as merchant ships were sunk in freezing waters was too painful to recount.

Even the medals he received at the end of the war were given scant attention. My mother, Mary, kept them in a box which she placed in a brown envelope simply labelled “Dad’s Medals”, and put them in the back of a drawer.

My father only took them out once. He had, for a time, served with the Free French on a Corvette with a ship’s company of 98 French sailors and only four British. In 1992 the French

Government honoured all foreign nationals who had taken up arms with their forces and awarded my father a small pension. They also invited him to receive a handsome certificate commending his bravery on behalf of their nation and a medal, Le Croix du Combattant. I accepted this on his behalf at a ceremony at Caen Town Hall, on the north French coast, at which I was kissed enthusiastically on both cheeks by the mayor.

Following this, Dad was invited to the French ambassador’s residence in Kensington on Bastille Day, for which he took out his medals, pinned them proudly to his chest and marched into the elegant mansion, saluted by Foreign Legionnaires.

Dad died 12 years ago. My mother died at Christmas. Suddenly, the medals were mine.

So I was touched when the nice young man from our solicitors, George Ide LLP in Chichester, took a special interest in Dad’s medals, asked what they were awarded for and inquired in general about his war record. He had come to assess my mother’s modest furniture and few possessions for probate. She lived in a small flat in this West Sussex town and left a modest estate.

A few days later, a financial assessment of chests, pictures, lamps and ornaments in my mother’s flat dropped through her letter box. It came to just £375. I had no issue with this until my gaze fell on a price attatched to Dad’s medals.

It read: “A World War Two Medal group of five to James Gilchrist in presentation frame: £40”.

I was confused. These few medals were awarded to my father by a grateful nation in recognition of his bravery and service for his country. Was I right in thinking that the state now wanted to levy inheritance tax on these symbols of his sacrifice? Yes, it did.

I felt outraged. I was told that HM Revenue & Customs through probate attaches a resale value to war medals if they are deemed to have been awarded for service – but not gallantry – on which I would have to pay inheritance tax of 40 per cent, because my mother’s estate was valued at more than the tax-free allowance of £325,000. The probate officer was merely estimating what my father’s medals would fetch at auction, I was told.

The thought of selling my father’s hard-won war medals made my blood boil. But what was worse was to think that the vampires at HMRC would seek, in effect, to charge my father’s family for his service in fighting the Nazis. The money is not the point: 40 per cent of £40 is just £16. The principle is the point.

I understand, of course, that war medals have a resale price when they go under the hammer. Lord Ashcroft has spent millions building up the world’s most extensive collection of Victoria Crosses. It is perhaps justified that gains made on these sales should be taxed in the same way that paintings or furniture sold at auction might.

But should an exception not be made on behalf of the dwindling band of Second World War veterans, as a gesture of recognition for their sacrifice? I think my father might have taken those medals and hurled them into the seas on which they were won, if he had known that the blood spilt to earn them was at some future date to provide revenue, no matter how small, to the Rt Hon George Osborne.

Then there is the matter of the distinction between “service” and “gallantry”. I asked the Revenue for an explanation of their policy. A helpful official politely inquired about my father’s service record and expressed admiration for all of those with a war record like Dad’s.

But he then referred me to the page on HMRC’s website that deals with this issue. It says: “To be excluded (from inheritance tax) the decoration must meet two conditions, which are that it was awarded for valour or gallant conduct; and that it has never been the subject of a disposition for a consideration in money or money’s worth. Some examples of medals awarded for gallantry are the Victoria Cross and the George Cross.”

So my dear old Dad didn’t qualify for exemption because it was deemed he hadn’t performed heroically enough to do so. Tell that to him when his ship was being stalked by U-boats in freezing seas, or being dived-bombed by Stukas – as on D-Day itself, when his vessel hit a mine, killing many on board.

There is clearly a market for medals. In Chichester I visited Peter Hancock Antiques, which advertises: “Medals wanted. Top prices given”.

Mr Hancock told me: “Collectors are passionate about medals and prices can be very high. What collectors most prize are medals with a history. They like to know who had them and the stories behind them. Your father’s medals sound ideal for sale. Please bring them in and we will price them for you.”

Evidence of this appetite for the history behind the medals came recently at Spinks in St James’s, when the medals of a wartime air commodore fetched £50,000 at auction.

It would have been repugnant to me to hawk my father’s medals around for valuation. But nor did I want to bow to HMRC on the matter. I found a solution which I think would make my Dad smile. I told the probate officer that while the presentation medal case might have hung in my mother’s flat in the bedroom where my Dad slept, he had long before his death bequeathed it to me. This meant that it had passed the seven years required for the medals to be safely excluded from his and my mother’s estate for tax purposes.

My explanation was accepted.

The medal case now sits proudly where I can see it every day. I had fought a small skirmish with no comparison to the battles my father had waged. But like him, my honour was satisfied.

Armed forces and inheritance tax: the loopholes explained

There are several inheritance tax quirks applying to servicemen and women.

The first, as Rod Gilchrist (pictured below) discovered, involves medals. The taxman makes a distinction between medals awarded for service and those for “valour or gallant conduct”.

So, for instance, campaign medals given to all who served in the Falklands conflict would not be exempt from death tax. They are included when an estate’s total value is calculated, with death duties falling due at 40pc of the value of the estate above the threshold of £325,000 per person (or £650,000 per married couple).

By contrast, medals awarded to individuals in recognition of specific acts of “gallant conduct” are exempt. Julia Rosenbloom of Smith & Williamson, the accountancy and investment management group, points out this perk applies only where the medal has never been sold. “These medals can be passed down a family line through many generations without attracting death duties,” she said. “Once they have changed hands for cash, that perk is lost.”

There is another potentially more valuable inheritance tax loophole available to servicemen. This is the provision which makes the entire estates of the men and women who die in action, or who die even many years later as a result of injuries sustained in action, exempt from inheritance tax. Julia Rosenbloom says this perk is little-known and rarely used. “I have not come across a case where it could be applicable,” she said.

However, there have been cases where this “death on active service provision” has been successfully used, including where injuries occurred decades earlier.

A spokesman for HM Revenue & Customs said: “Someone may have served in the Korean war but in doing so sustained an injury which 50 years later was the cause of death. It would be for the surviving family to demonstrate the link between the injury and the death, but this should be possible through medical records and records from the MoD. HMRC would want to minimise bureaucracy in such cases and would handle the matter with sensitivity.”
- money@telegraph.co.uk

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