Income Tax (Trading and Other Income) Act 2005

Income Tax (Trading and Other Income) Act 2005

2005 CHAPTER 5

Annex 1: Minor changes in the law made by the Act:

Change 121: Exempt income: personal injury damages: omission of statutory references and inclusion of damages for death: sections 731 and 751 and paragraph 148 of Schedule 2

This change relates to the omission, from the provisions exempting interest on personal injury damages and damages paid as periodical payments from income tax, of references to the specific statutory provisions under which the damages are awarded, and the inclusion of damages for death.

Section 329(1) of ICTA exempts interest on damages for personal injury from income tax and section 329AA of ICTA exempts personal injury damages paid in the form of periodical payments.

Section 329AA(1) of ICTA (as amended by section 100(2) of the Courts Act 2003) exempts periodical payments (as defined in section 329AA(1A) of ICTA) from income tax. Under section 329AA(1A)(b) of ICTA “periodical payments” includes payments made under an agreement so far as it settles a claim or action for damages in respect of personal injury (including an agreement as varied).

Section 329AA(6) of ICTA provides that such a claim or action includes claims or actions brought under various statutory provisions. In fact, it was never intended to limit the scope of the exemption by referring to these specific provisions. So, in rewriting this exemption, section 731 of this Act omits these references. However, the omission of the specific references to the Fatal Accidents Act 1976 and the Fatal Accidents (Northern Ireland) Order 1977 has made it necessary to refer specifically to damages for death, because without the references to that Act and Order it would not be clear that such damages are included in damages for personal injuries.

Similarly, section 329(1) of ICTA exempts interest on damages in respect of personal injuries or in respect of a person’s death included in a sum for which judgment is given by virtue of the provisions referred to in section 329(2) of ICTA. In rewriting this exemption, section 751 of this Act omits these references and merely refers to interest on damages for personal injury or death included in a sum awarded by a court, without referring to the provisions under which the award may be made.

Since these references have been omitted, it is necessary specifically to exclude interest relating to the period between the making and satisfaction of an award, as such interest is awarded under the Judgments Act 1838, which is not listed in section 329(2) of ICTA.

This change has no implications for the amount of tax due, who pays it or when. It affects (in principle and in practice) only administrative matters.