Until relatively recently all personal injury damages were tax free. However, that position has now changed for claims which settle above £500,000.
Now only the first £500,000 of damages for personal injury will be automatically treated as exempt from Capital Gains Tax. A claimant receiving damages in excess of £500,000 can, however, make a claim to HMRC for that excess also to be exempt. They can either do this on their tax return or seek separate clarification from HMRC.
As soon as it becomes clear that a claim may exceed £500,000, a solicitor should advise their client to seek appropriate advice from an accountant.