Revenue Note for Guidance
This section exempts from income tax and capital gains tax, the return arising to permanently incapacitated individuals from the investment of compensation payments awarded by the Courts, or made under an out-of-court settlement, or following assessment by the Personal Injuries Assessment Board, in respect of personal injury claims. The section applies where the return on such investment (both income and gains) is greater than 50 percent of the individual’s total income and gains.
(1) This section applies to any payment made—
(2)(a) Relevant gains are essentially chargeable gains arising from the disposal of assets that have been acquired by or on behalf of the individual concerned using the compensation payments or funds sourced from the investment or reinvestment of those payments. Relevant income means income derived from the investment and continuous reinvestment of the compensation payments which income but for this section would be chargeable to tax under—
(2)(b) Where for a year of assessment, the aggregate of an individual’s income and gains generated from investment and continuous reinvestment of the compensation payments is more than 50% of the aggregate of the individual’s total income and gains for that year, then the income so generated will be exempt from income tax and the gains so generated will be exempt from capital gains tax. However even if the exemption applies, the income and gains concerned require to be included in the individual’s tax return.
(2)(c) Where it is necessary to decide how much income is relevant income or how much gains are relevant gains, apportionment on a just and reasonable basis is to apply. This may be required where compensation payments or monies derived therefrom together with other funds available to the individual concerned are used to purchase an asset.
Relevant Date: Finance Act 2021