Will I have to pay tax on my injury compensation?
Updated: 2 Oct, 2025 By Chris Salmon
Claimants often ask whether they will have to pay tax on their work injury compensation. For some, the thought of dealing with HMRC or filing a tax return is another reason to delay making a claim. In most cases, personal injury compensation is tax-free, but there are a few important points to understand.
At a glance
- Personal injury compensation is exempt from UK income tax and capital gains tax under HMRC rules (Source: HMRC guidance published 2024)
- Interest from the date of injury to the settlement date is also tax-free.
- Delayed payments after settlement may attract income tax on interest earned.
- Returns from investing your award are taxable in the usual way.
- Personal injury trusts protect benefits entitlement, not tax.
Personal injury compensation is tax-free
In the UK, legislation states that compensation for personal injury is exempt from tax. This exemption applies whether your case is settled out of court or decided in court. Compensation is tax-free regardless of whether it is paid as a lump sum or in instalments.
Money for the injury itself is usually tax free. Interest or investment returns may be taxable. If you get means tested benefits, ask your solicitor about a trust to protect them.
John Kushnick
Legal Operations Director (NAL)
So why the confusion?
Confusion often arises because of reports about PPI compensation. In those cases, part of the payout includes taxable interest, which claimants must declare to HMRC. Personal injury claims are different: compensation and associated interest (up to settlement) are exempt from tax.
What about interest on personal injury payments?
Tax is not payable on interest added to your award from the date of your accident to the date your claim is settled. However, if there is a delay in actually paying your compensation after settlement, any further interest earned on the money is treated as income and may be taxed at your usual rate.
Example: A claimant injured on 1 January 2018 settled their case on 14 July 2019. The £32,400 award included £31,500 damages and £900 interest accrued up to settlement. No tax is due on the £900. If payment of the £32,400 was delayed and further interest accrued after settlement, that additional interest would be taxable.
Investing your award
If you choose to invest your compensation, any interest, dividends or returns are taxable in the usual way, like any other savings or investments.
What about personal injury trusts?
Personal injury trusts are not set up for tax reasons. Instead, they are designed to protect compensation from affecting eligibility for means-tested benefits or care contributions. Trusts are also useful for managing awards for children, vulnerable people or those unable to handle large sums of money.
If you are concerned about tax or trust arrangements, your solicitor can refer you to a professional tax advisor for specialist guidance.
Sources:
- HMRC CG13030 - Compensation: personal compensation or damages
- HMRC SAIM2330 - Interest: exemptions: personal injury damages
About the author
Chris Salmon is a legal commentator and co-founder of Quittance Legal Services. He has written extensively about workplace accidents, employment rights and the claims process. Chris's work has been cited in national media and he regularly contributes practical guidance to help injured workers understand their options.
Last reviewed October 2025 by Chris Salmon
Have you been injured at work?
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External references
- HMRC: Compensation - personal compensation or damages - explains tax exemptions for personal injury compensation payments.
- GOV.UK: Compensation after an accident or injury - provides an overview of the claims process, including considerations for tax on compensation.
- Compensation Act 2006 - outlines regulations for personal injury claims, relevant to understanding compensation and potential tax implications.