Tax exemption for compensation paid on bank account of Holocaust victims

There is a tax exemption for compensation paid by both UK and foreign banks to Holocaust victims or their heirs which has arisen on dormant accounts belonging to those victims from the war-time era.

The legislation covers payments made under the Restore UK initiative and the Claims Resolution Tribunal arrangements for dormant accounts in Switzerland and any other comparable payments made by foreign banks and building societies.

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What does the exemption cover?

The exemption covers payments under a compensation scheme representing

  • interest that has arisen on the account and
  • any revaluation of the original balance to take account of inflation.

The exemption applies to payments made in the tax year 1996-97 or any later tax year.

In order to qualify for the exemption the original account holder has to be a “victim of National-Socialist persecution”. This means those persecuted by the National-Socialist regime on the basis of race, religion, physical or mental disability or sexual orientation.

Payments which qualify for exemption are exempt from income tax. Any gain arising on the disposal of a right to receive the compensation payment 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 its 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 recipient.

What you should do if you receive or have received a compensation payment which you think should be covered by the exemption?

If you :

  • have paid UK tax on compensation payments received in earlier tax years or
  • as instructed by HM Revenue and Customs, mentioned the receipt of a compensation payment when submitting your 2004/05 Self Assessment return but did not include the payment on the return or
  • are unsure whether to include any payments (or any gain on disposal of a right to a payment) in a future Self Assessment return

please ring the Holocaust Victims' Accounts office on 0151 472 6128 who will advise you what to do. Alternatively you can write to them at :

Holocaust Victims' Accounts
HM Revenue and Customs
St John's House
Merton Road
Liverpool
L75 1BB

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

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