Is Compensation Taxable For Personal Injury Claims?

If you have been awarded compensation for an injury suffered or if you are intending to make a claim you may be wondering whether you will need to pay tax on any compensation settlement. This guide aims to answer the question, “Is compensation taxable?”

Within this guide, we discuss whether personal injury compensation is taxable or not. Following this, we explore whether you could invest your compensation and whether this investment is taxable. Additionally, we explain what types of compensation are taxable and how one of the No Win No Fee solicitors on our panel could help you with claiming compenssation.

If you have any further questions about compensation settlements, please contact our team:

people sit on piles of coins.

Choose A Section

Is Compensation Taxable?

If you have been injured in an accident which was not your fault, such as a motorcycle accident, you may be asking, “Is compensation taxable?” At this point, you will have enough to worry about without having to consider the tax implications of making a compensation claim. However, you do not have to worry about paying tax on any compensation received. Personal injury compensation for both general damages (the injuries you suffered) and special damages (the financial losses the injury caused) are awarded to you tax free.

Tax, which is calculated on income and earnings (income tax), does not include any money awarded in a compensation payout. In addition, the capital gains manual from HM Revenue and Customs (HMRC) states that Capital Gains Tax (CGT) is also not applicable to money awarded in compensation.

Additionally, any interest that has built up from the time the accident happened until the case is settled, the tax will already have been deducted from this and paid by the defending party before it is given to you.

Now that we’ve answered the important question, “Is compensation taxable?” we will answer other questions related to claiming compensation. If you have any further questions, talk to us about your personal injury claim.

Can I Invest My Personal Injury Compensation?

Now that we have answered ‘Is compensation taxable?’, you may be wondering if you can invest the compensation you have been awarded.

If you have been awarded an interim payment or compensation payout for your personal injury claim, you may choose to do different things with it. You may choose to invest any compensation in various ways. This could include placing any money into a bank account which earns interest.

If you do earn interest (or any other form of income) on your compensation settlement, this income may be taxable. You will need to file a tax return to declare any income earned on your compensation payout. In some cases, the tax may already have been ‘paid at the source’. Your bank branch or HMRC can be contacted to check whether you need to file a tax return.

Contact our advisors today with any questions you may have about personal injury compensation.

A calculator says claim on its display.

Which Types Of Compensation Are Taxable?

Whilst tax is not levied on personal injury compensation payouts, there are types of compensation which may be taxable. Under HMRC rules, there are some types of compensation which may be taxed. Whilst these rules do not relate to compensation payments in personal injury claims, they do affect other types of claims.

If you claim and are awarded compensation for mis-sold payment protection insurance (PPI) or make a similar type of claim, your compensation payment may be taxable. If you are awarded interest as part of any payout for a mis-sold financial product like PPI, the interest may be taxable.

Furthermore, if you were awarded compensation by someone to stop you from pursuing legal action, this may be taxable. However, it will not apply to compensation for injuries.

If you are still wondering, ‘Is compensation taxable?’ or would like to discuss a personal injury claim, you can contact our advisors.

Contact Us For Free To See If You Can Claim A Compensation Payout

Our expert team is on hand to help you to make a personal injury claim on a No Win No Fee basis. The solicitors who are part of our panel are experts in helping people claim compensation for a variety of different types of accidents and injuries. Examples of personal injury claims they could help you with include:

Additionally, the solicitors on our panel could help you claim on a No Win No Fee basis. Working with a solicitor on our panel under a Conditional Fee Agreement means you will not need to make any payments for your solicitor’s services prior to or during the claims process. You also will not need to pay them for these services if the claim is not successful.

Another question you may have is whether you can keep 100% of your compensation if your claim is a success. If you make a successful claim with a No Win No Fee solicitor, they will take a percentage of your compensation as a success fee. However, the law limits the maximum they can take as this percentage.

If, after having answered the question “Is compensation taxable?”, you still have any questions related to compensation payments and claims with a No Win No Fee solicitor, please contact our team:

Someone asking their solicitor 'Is compensation taxable?'.

More Resources About Personal Injury Claims

Here, we include further personal injury claims guides:

  • In this FAQ guide, we look at how to make a psychological damage compensation claim.
  • This guide looks at how you could get more money from a personal injury claim.
  • Here, you can read about the different time limits which apply to personal injury claims.

References:

We hope our guide has answered the question, “Is compensation taxable?” For more information on making a personal injury compensation claim, please contact a member of our team.