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Taxing Times - a particular issue for damages awards?

The prospect of tax rises being on the horizon to help fund some of the necessary expenditure in dealing with the Coronavirus crisis should come as no surprise. We all know that money does not grow on trees and the need to start to 'balance the books' will become increasingly pressing as we emerge from the current situation.

Whilst the Government has indicated they intend any tax review and changes to 'target the wealthy', we must not lose sight of the fact that some people are genuinely wealthy and may have shoulders broad enough to bear some additional tax. 

However, some people have a large amount of money, often managed through a Court of Protection Deputyship or Personal Injury Trust Fund which has been awarded to fund vital care, therapy and services for the rest of their lives as a result of an injury or negligent treatment they have received, which has left them with often complex and lifelong additional needs. 

The prospect of a 'double whammy' or increases to Capital Gains Tax AND reduction in personal allowances could hit vulnerable people in such situations particularly hard.

With bank interest rates so low, such vulnerable investors have little choice but to take some level of investment risk with their damages award to protect against the erosion of the buying power of their award against the impact of inflation.

Utilising capital gains tax allowances maximise funds available to meet care, therapy and other needs and also, perhaps most importantly, to enable rebalancing of risk levels within a portfolio, are vital to protect an award of damages as much as possible. Rebalancing a portfolio's risk level is needed to ensure that it truly can achieve its intended aims of putting a claimant as close to the position that they would have been in but for the injury or accident, and are able to have the care that they need, without taking unnecessary risk is an important consideration for those managing and investing awards of damages.

The prospect of an increased capital gains tax burden and the additional complexities that such considerations will add to an already difficult job is not one I relish as a Deputy and Trustee in such cases. The Government could of course look to legislate for separate  tax treatment of 'general wealth' and 'damages' - however, this would add yet another layer to an already complex tax system. 

But without innovative thinking, if such tax rises come in, there could be some significant and unintended consequences for some of society's most vulnerable. 

The amount of tax levied on capital gains could be raised by billions of pounds, according to a new report. About £14bn could be raised by cutting exemptions and doubling rates, according to the review, which was commissioned by Chancellor Rishi Sunak. The main losers would wealthy people who own second homes or assets not shielded from tax.

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Tags

private legal services, tax and estate planning, court of protection, personal injury trusts, personal injury, damages for personal injury