Key changes to the Infected Blood Compensation Scheme explained

This article was originally published on 1 October 2025 and updated on 9 December 2025 following the Autumn Budget. 

One heartening announcement in last week’s Budget was the Government’s agreement to make the changes to the Infected Blood Compensation Scheme that The Association of Lifetime Lawyers (ALL) and the Society of Trust and Estate Practitioners (STEP) have been lobbying for. Some claimants have waited as long as 50 years to be recompensed, which left many families in an unfair inheritance tax (IHT) planning situation.

Here, STEP (the Society of Trust and Estate Practitioners) and ALL (the Association of Lifetime Lawyers) member and our own private client solicitor, Helen Dawson, explains why these organisations have been campaigning for change, what those changes are and why people affected should seek prompt legal advice.

Infected blood compensation & inheritance tax explained

Compensation payments made by the Infected Blood Compensation Authority are exempt from income tax, capital gains tax and IHT (as per schedule 15 of the Finance Act 2020). Payments received can be gifted either in lifetime or on death free of IHT. 

However, it has taken over 50 years for the issue to be officially recognised, liability admitted and compensation payments administered. For many families, the compensation being paid out now is due to harm that was caused decades ago. In a significant number of cases, those affected have died (or will die) before receiving their compensation.

This is a critical distinction for inheritance tax planning because if someone receives compensation during their lifetime, they can give part of it away during their lifetime with no IHT consequences — and any compensation that they still hold at death will pass to their beneficiaries tax free. Additionally, if an estate receives compensation on behalf of someone who has died, that estate can be varied within two years of death to make the most of the IHT exemption.

However, if the estate receives the compensation more than two years after death, it can’t be varied in the same way.

The secondary transfer conundrum

This will often mean that the compensation will pass to someone else — such as a spouse — and be subject to IHT when the spouse gifts that on either during their lifetime or upon death. This scenario is referred to as a ‘secondary transfer’.

In any event, a spouse receiving the compensation would inherit from the deceased free of tax. However, given the choice, the deceased may well have chosen to redirect the payment to their children for them to receive the funds tax free. If the children receive the funds via the spouse (as a secondary transfer), the funds would generally be subject to IHT when they’re inherited from the spouse’s estate. 

Before the announcement in the Budget, this meant that an unfair situation arose where some families had IHT planning opportunities open to them that others didn’t — something that was primarily due to the significant length of time that it has taken for their situation to be recognised and compensated for. 

How did the Budget change this? 

The changes announced by Rachel Reeves in last month’s Budget mean that whoever receives the compensation — which might be a member of a claimant’s family if the claimant has died — will now be able to pass on the compensation free of inheritance tax on death. 

If the payment is received by someone other than the original claimant, that person will have two years to gift some or all of the compensation free of inheritance tax. This mitigates the secondary transfer conundrum and puts families on a much more equal footing.

Have you received compensation?

If you or your family have received — or are due to receive — a compensation payment made under the scheme, we recommend that you speak to your trusted advisors immediately and review your Will to ensure that you’re able to make the most of the planning opportunities available to you.

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If you need advice, talk to us today by calling 0333 004 4488, sending us an email at privateclient@brabners.com or completing our contact form below.