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Chapter IPTM5020

Document Cited authorities 2 Cited in Related
Vincent
Published date19 March 2016
Record NumberIPTM5020
CourtHM Revenue & Customs
IssuerHM Revenue & Customs
Main condition for tax exemption

A primary condition for periodical payments of personal injury damages to be exemptfrom income tax is that they are made under

  • an order of a UK court made in reliance of section 2 of the Damages Act 1996, or
  • an order of a court outside the UK which is similar to a UK order made in reliance of section 2 of the Damages Act 1996, or
  • an agreement which settles a claim or action for damages for personal injury or which provides for payments on account of damages pending full settlement, or
  • a Motor Insurers’ Bureau (MIB) undertaking in relation to a claim or action in respect of personal injury.

The link to the original settlement is crucial and the tax exemption is only availablewhen the settlement is structured at time of settlement by agreement or order of thecourt. It does not apply where the injured person or his or her representatives take alump sum and have a free hand to subsequently invest that lump sum as they please, forinstance by buying an annuity.

Court orders and other relevant documentation

When a caseworker is faced with a claim that periodical payments are exempt under ITTOIA05/S731and there is any doubt whether the exemption applies then he or she should obtaina copy of the court order, agreement or other relevant documentation governing theprovision of the...

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