IPTM5040 | Periodical payments: tax exemption: meaning of 'personal injury': includes fatal accidents

Definition of personal injury

ITTOIA05/S731(4) states that compensation awards in respect of personal injury also include damages payments in respect of a person’s death from personal injury.

‘Personal injury’ is not defined in tax legislation although ITTOIA05/S732 says that personal injury includes disease and impairment of physical or mental condition.

Claims or actions in UK in respect of fatal accidents

Orders of a UK court in respect of damages for personal injury made under the Damages Act 1996 extend to damages in respect of fatal accidents. This is because the meaning of ‘claim or action for personal injury’ in the Damages Act 1996 includes claims or actions brought under the Fatal Accidents Act 1976, or the Fatal Accidents (Northern Ireland) Order 1977.

Periodical payments might arise where, for instance, a court orders that regular payments should be paid for a certain time to the children of a person who was killed in an industrial accident. Then, the tax exemption in ITTOIA05/S731 extends to such periodical payments.

Claims or actions outside the UK in respect of fatal accidents

From 1 April 2005, where an order of a court outside the UK is similar to a UK order made under the Damages Act, periodical payments in respect of damages for a fatal accident are treated in the same way as if it was an order from a UK court. This means that periodical payments made on or after 1 April 2005 under such an order will be exempt from tax. This will be the case even if the order itself was made before 1 April 2005.

This only applies to damages for deaths. Periodical payments of damages for personal injury under an order from a foreign court have been treated in a similar way to damages under a UK order since the general exemption took effect on 29 April 1996, as described in IPTM5010.