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HMRC internal manual

Insurance Policyholder Taxation Manual

Periodical payments: tax exemption: meaning of ‘personal injury’: includes fatal accidents

Definition of personal injury

‘Personal injury’ is not defined in the tax legislation although ITTOIA05/S732says that personal injury includes disease and impairment of physical or mentalcondition.

It also says that damages in respect of personal injury includes damages in respect of aperson’s death from personal injury.

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 DamagesAct 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 1976 includes claims oractions brought under the Fatal Accidents Act 1976 or the Fatal Accidents (NorthernIreland) Order 1977.

Periodical payments might arise where, for instance, a court orders that regular paymentsshould be paid for a certain time to the children of a person who was killed in anindustrial accident. Then, the tax exemption in ITTOIA05/S731 extends tosuch 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 UKorder made under the Damages Act, periodical payments in respect of damages for a fatalaccident are treated in the same way as if it was an order from a UK court. This isbecause of amendments to the tax legislation made by the Courts Act 2003, as part of widerchanges to the Damages Act 1976, which took effect on 1 April 2005.

This means that periodical payments made on or after 1 April 2005 under such an order willalso be exempt from tax. This will be the case even if the order was made before 1 April2005.

Periodical payments of damages before 1 April 2005 in respect of deathsmade under an order of a court outside the UK were taxable.

Note however that this only applies to damages for deaths. Periodical payments of damagesfor personal injury under an order from a foreign court have been treated in a similar wayto damages under a UK order since the general exemption took effect on 29 April 1996, asdescribed in IPTM5010.

Further reference and feedback IPTM1013