Income Tax (Trading and Other Income) Act 2005 section 734

Payments from trusts for injured persons

Section 734 ensures that where personal injury damages or compensation payments are routed through a lifetime trust for the benefit of the injured person, the income tax exemption that applies to the underlying payments is preserved — both for the injured person and for anyone (such as a parent) who receives the payments on their behalf.

• Sums paid from a lifetime trust to the injured person, or for their benefit, are exempt from income tax
• The exemption covers both the injured person and any person (e.g. a parent or carer) who receives the sums on their behalf
• The trust must be one where the injured person is the sole beneficiary during their lifetime, funded by exempt personal injury damages or compensation
• The underlying payments feeding the trust must themselves qualify for exemption as periodical personal injury damages or statutory compensation awards