IPTM5030 | Periodical payments: tax exemption: payments made under an order, agreement or undertaking which is later varied

From 1 April 2005, courts have the power to include terms in an order that allow for it to be varied at some time in the future in specified circumstances. These might be, for instance, if there is a chance that the injured person will in future develop some serious disease or suffer some serious deterioration, or if his/her condition will significantly improve in the future. In these circumstances, the court is able to include terms in an order, agreement or undertaking to enable a future application to be made, or for it to be varied. Agreements settling a claim or action for damages for personal injury and undertakings from the Motor Insurers’ Bureau might also be varied at a later date on the same basis.

Where periodical payments arise from a variation of the original order, agreement or Motor Insurers’ Bureau undertaking from 1 April 2005 those payments will also be exempt from income tax, in the same way that periodical payments under the original order, agreement or undertaking are exempt from tax.

When an order is varied, the court may decide that the person to whom payments are due can change. This involves the order being assigned to someone other than the original recipient.