IPTM5070 - Periodical payments: tax exemption: payments from trusts for injured persons excluding the Thalidomide Children’s Trust

In some instances, the injured person may not be capable of handling his or her own affairs and the periodical payments of damages for personal injury are paid into a trust for the benefit of the injured person, rather than to the injured person directly.

The tax legislation recognises this and exempts the injured person from tax on any payments received by him or her from the trustees so long as

• the payments received from the trustees are made out of periodical payments received by the trust under a court order, agreement or Motor Insurers’ Bureau undertaking as described in IPTM5020, and
• the trust is one under which the injured person is the sole beneficiary whilst he or she is alive.

It also exempts from tax any persons, such as guardians, who receive payments from the trust on behalf of the injured person.

It is not necessary for the payments from the trust to the injured person to be periodical payments, simply that they are made out of periodical payments of damages received by the trust.

Any payments to the injured person out of trust funds that arose from some source other than the periodical payments are not covered by this tax exemption and normal rules about payments from trusts would apply to such payments. For detail of trust payments from the Thalidomide Children’s Trust, see IPTM5090.