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The £400,000 black hole - why scandal compensation might disappear

  • Writer: TBA
    TBA
  • Jun 11
  • 4 min read

Between the 1970s and 1980s, around 5,000 haemophiliacs and other blood disorder patients in the UK were infected with HIV or hepatitis viruses after receiving contaminated blood products from the NHS. Nearly 3,000 died as a result.


In addition, up to 30,000 patients may have been exposed to infected blood products during surgeries, with the consequences still unfolding today—new deaths are still reported weekly.

Survivors suffer from chronic illnesses like cirrhosis, cancer, and immune deficiencies. Some experienced broken families or even took their own lives due to delays in diagnosis and treatment. It is now recognised as the NHS’s greatest medical disaster.

 

Scandal compensation: 6-year inquiry unveils the truth


In 2017, following years of protests and public pressure, then-Prime Minister Theresa May ordered an independent inquiry. Led by former judge Sir Brian Langstaff, the inquiry lasted six years, reviewing tens of thousands of documents and hearing thousands of testimonies.


Investigation and accountability: 6-year inquiry unveils the truth

Compensation plan: £11.8 billion in historic redress


In October 2024, Chancellor Rachel Reeves allocated £11.8 billion in the budget to be administered by the Infected Blood Compensation Authority (IBCA).


The compensation includes five categories:


  • Health impact compensation: Up to £2.735 million for individuals infected with both HIV and hepatitis C.

  • Social impact compensation: For losses like interrupted employment and family caregiving.

  • Autonomy compensation: For life disruptions caused by treatment failures.

  • Care compensation: Financial support for caregivers and family members.

  • Economic loss compensation: Medical costs, lost income, and other financial impacts.


Implementation Details:


  • Interim payments: £210,000 will be paid within 90 days to those in urgent need.

  • Inheritance: If the victim is deceased, the compensation becomes part of their estate.

  • Tax exemption: The compensation is exempt from income tax, capital gains tax, and inheritance tax.


The focus of today’s article is the last point—the tax exemption policy.

 

The inheritance tax trap


In practice, the promise of tax-free compensation has proven hollow. Under current UK inheritance tax laws, only the first direct heir is exempt. Any subsequent inheritance of that scandal compensation is subject to up to 40% tax.


This is especially problematic for victim families—many of whom are already in their 60s or older. Once the original inheritor (such as a spouse or parent) dies, the remaining compensation passed on to other family members is heavily taxed.


So, even though the government claims the compensation is tax-free, in reality, the families of infected blood victims face huge inheritance tax bills—because the exemption only applies to the initial inheritance.


Given the long timeline of this scandal, many victims’ siblings or parents are now elderly. If they pass away and wish to pass remaining funds to others in the family, those recipients face inheritance tax rates of up to 40%.

 

The Telegraph interviewed a woman in her 60s with multiple health issues. Her brother died in the 1990s after contracting HIV from contaminated blood. She is due to inherit at least £1 million in compensation from his estate.


However, if she dies soon after receiving it, her family could lose £400,000 to inheritance tax—because second-generation heirs are not tax-exempt. Under current rules, gifting money to children or others only becomes tax-free if the giver lives more than seven years after the gift. If not, inheritance tax applies.


In other words, this woman—already in her 60s and in poor health—must live at least 7 more years, or her family will lose nearly half of the compensation.


This woman’s story is heartbreakingly common. Her brother died decades ago, and if she passes away within seven years of inheriting his compensation, her children will lose 40% of it. This policy design effectively inflicts a second wound on families: even after legal redress, the state continues to erode the legacy of the victims.


The inheritance tax trap


Minimising your inheritance tax bill


The standard inheritance tax threshold (Nil-Rate Band, NRB) is £325,000. Any amount above this is taxed at 40%.


While compensation from the infected blood scandal is technically tax-exempt, here are four legal strategies to reduce inheritance tax exposure:


1. Maximize Tax-Free Thresholds


Leave your primary residence to children or grandchildren to claim an extra £175,000 Residence Nil-Rate Band (RNRB). Married couples or civil partners can combine allowances, totalling up to £1 million tax-free.(£325,000 + £175,000) x 2 = £1,000,000


2. Gifts and the Seven-Year Rule


If you gift assets and live more than seven years, they’re exempt from inheritance tax. If you die sooner, they’re taxed on a sliding scale.


3. Use Trusts


Placing assets in a trust transfers ownership to trustees, helping keep them out of the taxable estate.Also, donating at least 10% of the estate to charity can reduce the tax rate to 36%.


4. Investment Strategies


  • Enterprise Investment Scheme (EIS):

    • Exempt from inheritance tax after 2 years

    • 30% income tax relief on investment

    • Capital gains tax exemption on sale


  • ISA Accounts:

    • Tax-free within the account

    • Can be passed to a spouse without inheritance tax implications


Minimising your inheritance tax bill

Some final thoughts


The contaminated blood scandal reveals not only the ongoing need for medical oversight but also the deeper tension between legal systems and human ethics. When the law reduces moral restitution to fine print and footnotes, it is arguable that no amount of money can truly restore public trust.


The UK’s inheritance tax system is complex and constantly evolving. Strategic planning and professional advice are crucial. By using tax-free thresholds, trusts, and smart investment vehicles, families can pass on wealth whilst minimising their tax liability.


For individuals and businesses looking for UK taxation services, use our contact form to get in touch for more information.


Get in touch with us at info@tbgroupuk.com or for a free one-to-one consultation. 


This article is intended as general guidance only, and does not replace any legal or professional advice.  For enquiries, please contact TBA Group via email or WhatsApp.

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