JBD

 

Tax & Benefit

Tax Exemption on Holocaust bank restitution

On 19 July 2005 the Paymaster General, Dawn Primarolo announced that legislation would be introduced to exempt from tax compensation payments paid by foreign banks and building societies to Holocaust victims or their heirs, in particular payments made under the Claims Resolution Tribunal for Dormant Accounts in Switzerland. The opportunity would also be taken to legislate an existing concession ESC A100 which exempted compensation payments made by UK banks and building societies under the Restore UK initiative to Holocaust victims or their heirs.

The legislation has now been enacted. The exemption covers compensation payments which represent interest that has accrued to the account and also any revaluation of the original balance to take account of inflation. It applies to payments made in the tax year 1996-97 or any later tax year.

Payments which qualify for exemption are exempt from income tax. Any gain arising on the disposal of a right to receive the payments is exempt from capital gains tax.

Recipients of compensation payments may have been entitled to make a claim under the scheme in question by virtue of a relationship to the original account holder traced through deceased relatives. Therefore the exemption also covers any additional inheritance tax (IHT) (or predecessor taxes) that might have arisen to a deceased’s estate in this chain immediately prior to the inception of the scheme involved, in respect of rights to the bank or building society account of an original account holder. By contrast actual payments of compensation from a scheme will, like any other asset, form part of the IHT estate of the deceased.

Anyone who:

  • has paid tax on compensation payments or 
  • as instructed by HM Revenue and Customs, has mentioned the receipt of a compensation payment when submitting their 2004/05 Self Assessment Return without actually including the payment on the return or 
  • is unsure whether to include any compensation payments (or any gain) on a disposal of a right to a payment) in a future Self Assessment return for 2006/07 or a later tax year.

should ring the Holocaust Victims’ Accounts office on 0151 472 6155 who will advise them what to do. Alternatively they should write to:

Holocaust Victims’ Accounts
HM Revenue and Customs
St Johns House
Merton Road
Bootle
Merseyside L69 9BB

For enquiries involving inheritance tax please ring the Probate and Inheritance Tax Helpline on 0845 30 20 900 or write to:

Capital Taxes
Ferrers House
PO Box 38
Castle Meadow Road
Nottingham NG2 1BB

AJR welcomes Tax Exemption for Compensation paid on Bank Accounts of Holocaust Victims

The Association of Jewish Refugees (AJR) welcomes the government's announcement to make exempt from income and capital gains taxes compensation awards paid in respect of accounts in foreign banks owned by Holocaust victims.

Having been in discussions over a number of months with HM Revenues and Customs (formerly the Inland Revenue) the AJR is delighted that legislation to be enacted in the next Finance Bill will extend the terms of extra-statutory concession (ESC) A100 introduced in May 2000 to cover awards made from the Restore UK scheme .

The proposed legislation would allow recipients of awards from, amongst other comparable schemes , the Claims Resolution Tribunal (CRT), which handles claims for dormant Swiss bank accounts , to be free from income and capital gains taxes.

Recipients of qualifying awards where tax has already been paid will be entitled to a rebate whilst claimants expecting a payment do not need to include the award in future tax returns.

The proposal is that the Finance Bill will also make provision for an exemption from retrospective inheritance tax where the estate or heirs receive an award in respect of someone who died before the schemes were introduced.

AJR Treasurer and Vice-Chairman, David Rothenberg said, "We are delighted that the government has responded positively to our request to introduce this important extension to Holocaust victims and their families of the concessions which applied to compensation from British banks so that the families of Holocaust victims will receive the full benefit from their compensation awards."

Tel: 020 8385 3074
Fax: 020 8385 3075
Email: mnewman@ajr.org.uk
Website: http://www.ajr.org.uk

WRITTEN MINISTERIAL STATEMENT

Tax exemption for compensation payments paid on bank accounts of Holocaust victims: Finance Bill legislation

The Paymaster General (Dawn Primarolo): The Government proposes to bring forward legislation in the next available Finance Bill to exempt from tax certain payments made in relation to bank accounts of Holocaust victims, as described below.

The HM Revenue and Customs' extra-statutory concession A100, introduced on 8 May 2000, provides a tax exemption for compensation payments made by UK banks under their scheme called 'Restore UK'. The scheme is designed to identify and compensate claimants to dormant accounts opened by Holocaust victims and frozen during World War II under the Trading with the Enemy Act.

Since the introduction of the extra-statutory concession it has come to light that comparable payments may be made to Holocaust victims or their heirs in respect of monies held by the banks of other countries. For example, claims may be made by victims or targets of Nazi persecution or their heirs through the Claims Resolution Tribunal (CRT) for Dormant Accounts in Switzerland in respect of monies deposited in Swiss banks in the period before and during the Second World War. The CRT was established as a consequence of the Holocaust Victims Assets Litigation in America.

The CRT awards made to the Holocaust victims or their heirs and any comparable payments made by the banks of other countries are outside the scope of ESC A100, because it is available only for payments made under the 'Restore UK' scheme run by UK banks.

Following discussions between the Association of Jewish Refugees and HMRC, the Government proposes to bring forward legislation in the next available Finance Bill. The legislation will exempt from income tax and capital gains tax payments made to Holocaust victims or their heirs when they are broadly comparable to the awards made under the 'Restore UK' scheme run by UK banks. This will include any amount designed to cover interest and inflation by increasing the account balance to make it a fairer reflection of the amount originally deposited. The exemption will be available whenever the award or payment was made, so long as the criteria set out in the legislation are met.

The proposal is that there will be a provision in the legislation so that anyone who has included a qualifying payment in their self assessment tax return and paid tax will be able to reclaim the tax, even if the normal time limit for amending the assessment has passed.

The proposed legislation will also clarify the effect of the exemption for inheritance tax (IHT) purposes. Present-day recipients of these payments often derive their claim through intervening potential claimants who are now dead. The existing extra-statutory concession aims to ensure that the IHT affairs of these predecessors need not be re-opened because an account has been rediscovered. The Government proposes that, when the accounts of Holocaust victims or their heirs are rediscovered and compensation payments are made in respect of them, legislation in the Finance Bill will include an exemption from death duties for intervening potential claimants who died before the respective award scheme was opened for claims.

At the same time as bringing forward legislation to provide a tax exemption for compensation payments that are broadly comparable to the 'Restore UK' scheme, the Government proposes to take the opportunity to put on a statutory footing the exemption currently available under ESC A100 for payments made by UK banks. So that too will be included in the proposed legislation.

UK building societies may participate in the 'Restore UK' scheme and ESC A100 applies to any compensation payments made by them to Holocaust victims or their heirs. The proposed exemption will include payments by the building societies of other countries.

More information about the proposed tax exemption and guidance for anyone who thinks they may be able to claim back tax already paid on an exempt award is in the News Release published by HM Revenue and Customs today at

www.hmrc.gov.uk/individuals/holocaust.htm.

HM TREASURY
19th July 2005

Tax clarifications and Benefit explanations

Inheritance Tax Concessions Explained

Lump sum compensation payments received by Holocaust survivors will be excluded from inheritance tax (IHT) under an extended concession announced in March 2002 by the British government.

Extra-statutory concession (F20) allows the amount of the compensation payment to be deducted from the claimant's IHT chargeable estate, whether the payment is made to the claimant before their death or is made subsequently to their personal representatives.

Now excluded from inheritance tax are payments from a range of indemnification schemes, including slave and forced labour compensation as well as reparations from the Swiss Refugee Programme, the Dutch Maror Fund and the French Orphan scheme.

The concession now covers the past and anticipated payments from the above compensation programmes as well as awards received already from the Hardship Fund and the Austrian National Fund for Victims of Nazi Persecution. The extended concession aligns these payments with comparable ex-gratia amounts from the UK Government to British groups held prisoner by the Japanese during World War II.

The concession, does not, however, extend to payments received or expected from property restitution or compensation in respect of lost, stolen or confiscated assets.

More Information:

Inheritance Tax - Wartime Compensation Payments
Ministers have agreed to requests to extend extra-statutory concession F20 from 13 March 2002, to include further schemes which compensate original victims or their spouses for the personal hurt suffered at the hands of the National Socialist regime during World War II. Claims in respect of the German Public Law foundation "Remembrance, Responsibility and Future" and Holocaust Victim Assets Litigation (Swiss Bank Settlement) are being dealt with for non-Jewish claimants by the International Organisation for Migration, and for Jewish claimants by the Conference on Jewish Material Claims against Germany. Claimants entitled to the concession in respect of these claims are being advised by the relevant organisation at the time of their successful claim. The extended concession aligns these payments with comparable ex-gratia amounts from the UK Government to British groups held prisoner by the Japanese during World War II.

Under the present inheritance tax (IHT) rules, rights to such compensation, or the subsequent proceeds, could form part of the claimant's estate for IHT purposes. Extra-statutory concession (F20) allows the amount of any compensation payment to be deducted from the claimant's IHT chargeable estate, whether the payment is made to the claimant before their death or is made subsequently to their personal representatives.

The revised text of the concession is detailed below.

F20. Late Compensation for World War II Claims

Schemes continue to be established in the UK and abroad which provide compensation for wrongs suffered during the World War II era. When this is received by the original victim or their surviving spouse, this almost inevitably comes late in life when their plans for the disposal of their wealth have already been made. Ministers have agreed that the cash value of these claims may be excluded from inheritance tax in the following cases where compensation is paid in modest round-sum, or otherwise cash-limited, amounts:

  • single ex-gratia lump sums of £10,000 payable to each surviving member of the British groups - or their surviving spouse - interned or imprisoned by the Japanese during World War II as announced by the Government on 7 November 2000;
  • financial compensation of fixed amounts payable from the German foundation "Remembrance, Responsibility and Future" or the Austrian Reconciliation Fund to claimants - or their surviving spouse - who were slave or forced labourers or other victims of the National Socialist regime during the World War II;
  • financial compensation of $1,000 payable from the Holocaust Victim Assets Litigation (Swiss Bank Settlement) to each of the slave or forced labourers qualifying under the aforementioned German foundation scheme;
  • financial compensation by way of fixed amounts to the victim or their surviving spouse from the Swiss Refugee Programme;
  • financial compensation by way of fixed amounts to the victim or their surviving spouse from Stichting Maror-Gelden Overheid (Dutch Maror); and
  • financial compensation by way of a one-time payment to the victim or their surviving spouse from the following:
    • monies allocated by the Federal German Government (the Hardship Fund);
    • the Austrian National Fund for Victims of Nazi Persecution;
    • the French Orphan Scheme.

Payments of this kind would normally increase the value of a deceased person's chargeable estate at death, either because a claim paid in their lifetime has increased their total assets, or because the right to a claim not yet paid is itself an asset of their estate.

By concession, where such a payment has been received at any time, either by the deceased or his or her personal representatives under the arrangements, the amount of the payment may be left out of account in determining the chargeable value of his or her estate for the purposes of inheritance tax on death. Similarly, where a person qualifies for more than one payment then each amount may be left out of account.

All enquiries about this extra-statutory concession in particular cases (quoting the full name and date of death of the deceased plus the Inland Revenue Capital Taxes reference number if known) should be directed to:

Inland Revenue Capital Taxes - IHT
Ferrers House
PO Box 38
Castle Meadow Road
Nottingham NG2 1BB

For members of the DX system:
Inland Revenue Capital Taxes
DX 701201
NOTTINGHAM 4

DSS Capital Disregards clarified

Following a government decision on 17 November 2001, compensation payments to Holocaust survivors will be disregarded as capital when calculating housing and income related benefits following an extension to Social Security regulations.

The changes have been introduced to coincide with the recent and imminent disbursal of payments from a number of Holocaust-era compensation programmes including the Austrian National Fund and the Foundation: Remembrance, Responsibility and the Future. The new legislation will come into effect on 19 November 2001.

Holocaust survivors in receipt of, or in the process of claiming, Income Support including Minimum Income Guarantee, Housing Benefit, Council Tax Benefit or Jobseeker's Allowance should inform their local authority office dealing with their claim when a compensation payment has been received.

For the wording of the Statutory Instrument, click here.

Income Tax exemption for reparation pensions

Section 330 of the Income and Corporation Taxes Act 1988 confirms that pensions and allowances paid to victims of Nazism are exempt from income tax.

The central part of the law states that, “Annuities and pensions payable under any special provision for victims of National-Socialist persecution which is made by the law of the Federal Republic of Germany or any part of it or of Austria shall not be regarded as income for any income tax purpose”.

The exemption extends to back payments paid prior to the commencement of a pension. Despite back payments being a lump sum they do not attract Capital Gains Tax.

Anyone receiving such payments and who is required to complete an income tax return is advised to refer to the above statute.

Capital Gains Tax  

Awards made in respect of insurance policies under the terms of the International Commission on Holocaust Era Insurance Claims (ICHEIC) and for property in the former East Germany are exempt from capital gains and income taxes in accordance with the terms of extra statutory exemption D50 (ESC D50). This concession also applies in practice to payments under the Claims Conference 'Goodwill Fund.

Once received, the value of all such claims is part of the claimant's estate for Inheritance Tax purposes. If the claim has not been recognised at the date of death, then the uncertain value of the claim, being an asset of the deceased, must be agreed with the Capital Taxes Office.

This link to the Revenue’s website explains more:
http://www.hmrc.gov.uk/manuals/cg4manual/cg78705.htm 
but you should in any case seek further qualified advice when submitting a tax return.