Income Tax (Earnings and Pensions) Act 2003 section 406

Exception for death or disability payments and benefits

Section 406 provides an exception from the tax charge on termination and other payments where the payment or benefit arises because of an employee's death, injury, or disability.

• Payments or benefits connected with the termination of employment caused by the death of an employee are exempt from the termination payments tax rules
• Payments or benefits provided on account of an employee's injury or disability are also exempt from these rules
• The definition of injury includes psychiatric injury, such as recognised mental health conditions
• Injured feelings alone — such as emotional distress or upset — do not count as injury for the purposes of this exemption