This is more of a public service announcement, it is not new, it is out there in the wild and has been for some time. But it is something that not everyone may be aware of and I have only read about recently.

Basically, if you are subject to a personal injury award and/or settlement, then you may be entitled to an exemption from revenue when it comes to paying tax on the profits from any investments made with the compensation.

Here is the run-down, but I will link to the official documents at the end. Just to note, all this was correct as of writing this post.

Understanding Tax Exemptions for Permanently Incapacitated Individuals

So here is the main hurdle to overcome, these tax exemptions are for permanently incapacitated individuals. This is a ray of light for those you have suffered the most – there are exemptions out there that could make a big difference. Let’s look at some detail below, in my layman terms, to see how these exemptions can help out.

Section 189 of the Taxes Consolidation Act 1997

This is the document you need to refer to Section 189 of the Taxes Consolidation Act 1997 (TCA). It offers a list of the exemptions for individuals who are permanently and totally incapacitated. This means they’re exempt from Income Tax, Pay Related Social Insurance (PRSI), Universal Social Charge (USC), and even Capital Gains Tax on certain income and gains arising from compensation payments related to personal injury claims.

What Qualifies for Exemption

To qualify for this exemption, the individual must be permanently and totally incapacitated from maintaining themselves due to a mental or physical infirmity that arose from an injury. It’s a pretty high threshold, so it’s not just about any kind of incapacity — it has to be a serious and ongoing situation.

Conditions and Considerations

There are specific conditions and considerations to keep in mind when it comes to claiming this exemption. For instance, the compensation payment must arise from a specific type of order or legal action related to personal injury, and the extent of the injuries and the individual’s previous ability to maintain themselves will also be considered. A financial advisor, or accountant, should be able to guide you right here.

Out-of-Court Settlements and Other Payments

Even if the compensation doesn’t come from a formal legal order, it could still qualify for exemption if it’s related to a personal injury claim. Additionally, payments from the Criminal Injuries Compensation Tribunal are also considered for exemption under certain circumstances.

How to Apply

To claim the exemption, a certificate from a medical practitioner outlining the nature and extent of the individual’s infirmity and confirming their permanent incapacity is usually required.

So, there you have it — a little-known but potentially game-changing exemption for individuals who are permanently and totally incapacitated. It’s definitely worth looking into if this applies to you or someone you know! I also recommend you to speak with a financial advisor to help with this. As you can imagine, the long-term implications could be significant if this affects you.

Further reading:

Revenue Ireland — Personal injury compensation payments

Tax Manual (PDF) — Compensation Payments in respect of Personal Injuries (Exemption of Investment Income)