The following Tax practice note provides comprehensive and up to date legal information covering:
Where a dispute is brought to an end by a payment of damages or compensation, whether under a court order or an out-of-court settlement agreement:
the person receiving the payment (the claimant) will want to know whether that amount is taxable, and
the person making the payment (the defendant) will want to know whether they can claim any tax relief
This Practice Note considers these two questions in turn, in relation to direct UK taxes. The parties will also need to know whether the payment attracts VAT, and this is considered in Practice Note: VAT treatment of damages and compensation payments.
Tax considerations may also be relevant to the calculation of the amount of the damages or compensation payment. This is considered in Practice Note: The effect of tax on the quantum of damages.
The first step in deciding whether a payment of damages or compensation will be taxable for the person receiving it is to determine whether it is income or capital. This is because, under basic tax principles, the legislation imposing income tax, corporation tax and capital gains tax has separate rules for receipts of a capital nature, and receipts of an income nature.
If the receipt is income, it is highly likely that it will be taxable (subject to any losses or other reliefs the claimant may be able
**Trials are provided to all LexisPSL and LexisLibrary content, excluding Practice Compliance, Practice Management and Risk and Compliance, subscription packages are tailored to your specific needs. To discuss trialling these LexisPSL services please email customer service via our online form. Free trials are only available to individuals based in the UK. We may terminate this trial at any time or decide not to give a trial, for any reason. Trial includes one question to LexisAsk during the length of the trial.
To view the latest version of this document and thousands of others like it, sign-in to LexisPSL or register for a free trial.
Existing user? Sign-in
Take a free trial
What is a res judicata?A res judicata is a decision given by a judge or tribunal with jurisdiction over the cause of action and the parties, which disposes, with finality, of a matter decided so that it cannot be re-litigated by those bound by the judgment, except on appeal.Final judgments by
This practice note provides an introduction to tort law by addressing three questions:•what does the concept of being liable in tort mean? And how does tort relate to contract and criminal law•how has the law of tort developed?•what is the scope of tort, ie what interests does it protect? What
This Practice Note considers the doctrine of forum non conveniens, also referred to as the appropriate forum or the proper place for a dispute to be determined. This doctrine is of relevance when determining whether the courts of England and Wales have jurisdiction to hear a dispute and is applied
This Practice Note considers the legal concept of mistake in contract law. It examines common mistake, mutual mistake, unilateral mistake, mistake as to identity and mistake as to the document signed (non est factum). It also considers the impact of each of these types of mistake on the contract and
0330 161 1234
To view our latest legal guidance content,sign-in to Lexis®PSL or register for a free trial.