Compensation And Damages Awarded for Personal Injuries Are Free from Tax

Compensation And Damages Awarded for Personal Injuries Are Free from Tax

Regardless of whether the settlement is the outcome of a decision in a court case or negotiations between the plaintiff and the defendant, it's based on various factors, such as the expenses and impacts you've experienced as a result of the accident. Many victims hesitate to reach out to a solicitor because they fear they have no money for a civil lawsuit, not knowing they can settle their disputes and reach a compromise to avoid trial (and the risk of losing). The longer the case is litigated, the longer the cost, so it doesn't come as a surprise that many companies prefer settling rather than defending the lawsuit in court.

What's The Difference Between Compensation and Damages?

The terms compensation and damages are used interchangeably in the context of personal injury, even if there's a considerable difference between the two.
Compensation aims to redress injustice or wrongdoing to an individual by providing them cash assistance from the person responsible for the offence.
Compensation is given as a sentence in its own right or alongside another sentence, such as a fine.
In setting the amount, the court must strike a balance between seeking compensation and not imposing an unrealistic debt.
The victim may or may not want compensation from the offender, so it shouldn't inflict further harm.

Damages are an award of money for injuries and losses resulting from the wrongdoing or guilt of another person.
They're awarded for emotional and psychological suffering to the plaintiff.
To compensate them for the loss sustained, not punish the wrongdoer.
Many start the pursuit of compensation by filing a claim with the at-fault party's insurance company; the demand can be negotiated into a settlement based on their policy.
If the victim runs into obstacles with the insurance company, they can file a personal injury lawsuit against the person who caused the harm through negligence.
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Higher Settlements Make the Average Payout Larger Than It Might Be

At the outset of a personal injury claim, the only thing a person can think about is the value of the award.
As far as the quantification of the case is concerned, the following areas of loss are taken into account:
  • General damages
  • Past special damages
  • Future special damages

General damages can't be mathematically examined at the trial date, as no two injuries are identical.
The predominant head is pain, suffering, and loss of amenity.
Other examples include mental pain and anguish, loss of career, handicap in the labour market, and loss of prospects.
For general damages, the claimant is compensated for intangible things.

Special damages are calculated by adding up the debt the claimant has incurred as a result of the accident or lost wages (or both).
A typical example is the number of medical bills incurred from post-accident treatments.
Every case is unique, so every claim will have its own particularities regarding what is recoverable as a loss.
The solicitor will calculate the expenses incurred from the accident (or illness).
Future special damages are intended to compensate for future costs or loss of earnings, so it's essential to keep receipts and other documents.
Nevertheless, the victim has a duty to take reasonable steps to minimise their losses.

Compensation Or Damages Awarded for Personal Injuries Is Exempt from Tax

If you receive personal injury compensation and damages, you don't have to pay tax.
Any sum obtained by the injured party isn't regarded as chargeable gains, which means it's not subject to Capital Gains Tax.
If you make a successful claim for your injury, you receive a compensation settlement and damages, not to mention interest accumulated from when the accident happened.
There's no reason to worry because the interest you receive will already have tax deducted, paid by the other party, so you don't have to pay anything.
Still, you'll need to declare it to the HMRC.
There's confusion because, in 2014, the HMRC revised its rules so that specific types of compensation are taxable.
According to press reports, individuals have been compelled to pay tax for compensation for lost interest in cases regarding mis-sold payment protection insurance on credit cards.
Attention needs to be paid to the fact that the interest on the compensation is taxable.
The amount you receive isn't affected by your income or savings.
Getting back on topic, pursuing a claim for injury compensation won't leave you with a hefty tax bill; depending on the case, the sum awarded will be from a few thousand pounds to millions.

Factors That Can Bear Weight on The Value of Your Claim

Here are some of the critical factors that will determine how much money you can collect:
  • Liability. You must have evidence to prove that the defendant had a legal responsibility to exercise a certain level of caution to prevent harm.
    Common evidence used to prove fault include police reports, statements by witnesses, and documents/records.
  • The severity of the injury. The more severe the injury, the higher the financial award will be.
    If the injury is considered permanent (e.g., amputation), you can expect a more significant compensation.
    A permanent serious disfigurement could lead to physical and mental impairment.
  • The effect on your daily life. You may end up having problems in the aftermath, such as depression.
    Also, you may experience sleep issues and become more likely to be irritated.
  • Recovery. How much it takes for you to recover is an essential factor.
    If recovery isn't quick, more medical appointments and treatment are necessary.
    Compensation provides financial assistance to cover medical treatment and lost wages.
  • Loss of earnings. If you're not able to work following the accident, it will be considered.
    Both the loss of earnings to date and into the future are examined.
  • Medical bills and out-of-pocket expenses. Past and future out-of-pocket expenses determine how much compensation you can claim.
    Examples include medication, travel expenses, and so on.
To successfully pursue a claim for personal injury, you must demonstrate the other party was negligent.