Tax treatment of the Troubles Permanent Disablement Payment Scheme
Published 11 March 2020
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Who is likely to be affected
Individuals and personal representatives who receive payments under the Troubles Permanent Disablement Payment Scheme.
General description of the measure
This measure introduces Income Tax, Inheritance Tax and Capital Gains Tax exemptions for payments made under the Troubles Permanent Disablement Payment Scheme.
Policy objective
These changes give certainty to claimants that payments made under the Troubles Permanent Disablement Payment Scheme will not give rise to charges to Income Tax, Inheritance Tax and Capital Gains Tax.
Background to the measure
The Troubles Permanent Disablement Payment Scheme will be introduced by the UK Government in May 2020 to support victims injured in the Northern Ireland Troubles.
The payments will provide a form of recognition of the significant and particular harm caused to individuals by the Troubles, provide a degree of financial certainty and support an improved quality of life for those seriously injured in the Troubles. The payments are not intended to put individuals back into the financial position they might otherwise have been without the disability. Payments will be backdated to December 2014.
Without this exemption, some payments made under the scheme could be subject to Income Tax, Inheritance Tax or Capital Gains Tax.
Operative date
This measure will take effect in relation to payments made under the Troubles Permanent Disablement Payment Scheme from 29 May 2020 and in relation to Inheritance Tax in respect of someone who dies on or after 29 May 2020.
Current law
The Income Tax (Earnings and Pensions) Act 2003 imposes charges to Income Tax on employment income, pension income and social security income. The Income Tax (Trading and Other Income) Act 2005 charges Income Tax on the profits of a trade, profession or vocation, which can include receipts in compensation for loss of profits.
The Taxation of Chargeable Gains Act 1992 imposes Capital Gains Tax on gains that arise on the disposal of assets which are not chargeable to Income Tax. However, compensation or damages received by an individual for any wrong or injury suffered in his person or in his profession or vocation is exempt from Capital Gains Tax.
Section 4 of the Inheritance Tax Act 1984 imposes the charge to Inheritance Tax for transfers on death. Payments made under the scheme, or the right to receive such payments would be treated as part of the deceased’s estate and would be subject to Inheritance Tax on their death. There are reliefs already in existence with respect to payments to victims of persecution during the Second World War era (Section 153ZA Inheritance Tax Act 1984).
Detailed proposal
Legislation will be introduced in the Finance Bill 2020 to exempt payments made under the Troubles Permanent Disablement Payment Scheme from Income Tax, Inheritance Tax and Capital Gains Tax. The changes take effect in relation to payments made from the Troubles Permanent Disablement Payment Scheme from 29 May 2020 and in relation to Inheritance Tax in respect of someone who dies on or after that date.
Exchequer impact (£m)
| 2019 to 2020 | 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 |
|---|---|---|---|---|---|
| nil | negligible | negligible | negligible | negligible | negligible |
This measure is expected to have a negligible impact on the Exchequer.
Economic impact
This measure is not expected to have any significant economic impacts.
Impact of individuals, households and families
This measure is expected to have a positive impact on individuals receiving payments under the Troubles Permanent Disablement Payment Scheme by exempting them from Income Tax, Capital Gains Tax and Inheritance Tax. Customer experience for individuals in receipt of this benefit is expected to stay broadly the same as these individuals will not experience any change to their customer experience. This measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
This measure will have a positive impact on those in groups sharing protected characteristics who receive payments under the Troubles Permanent Disablement Payment Scheme by exempting them from Income Tax, Capital Gains Tax and Inheritance Tax.
Impact on business including civil society organisations
This measure is not expected to have any impact on businesses or civil society organisations as it only affects individuals receiving payments under the Troubles Permanent Disablement Payment Scheme.
Operational impact (HMRC or other)
This measure is not expected to have any operational impact or costs.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
This measure will be kept under review through communications with affected taxpayer groups.
Further advice
If you have any questions about this change, email: incometax.structure@hmrc.gov.uk