3 minute read
When pursuing a medical negligence claim, the primary focus is naturally on achieving a settlement that provides for your future care and acknowledges the impact of the injury. However, a common question many clients ask is whether their final award will be subject to taxation.
At Augustus Cullen Law, we believe in providing clear information to help our clients plan for the future. Below, we explain how the Revenue Commissioners and the Irish state treat compensation awards.
Before we get into it, we should stress that we are not tax advisors. This content is for informational purposes only, and if you have questions relating to your tax affairs, we strongly suggest you speak with a qualified tax advisor.
In Ireland, the general rule is that compensation for personal injuries, including medical negligence, is exempt from income tax and capital gains tax (CGT).
Under Irish law, a compensation award is viewed as a way to restore you to the position you would have been in had the injury not occurred. Because it is intended to make you whole rather than to generate a profit, the capital sum is typically received tax-free.
This exemption applies to:
A significant portion of many settlements relates to loss of earnings. These are the wages you would have earned had you been able to continue working. While your regular salary is subject to tax, the compensation you receive for lost wages is handled differently.
In Ireland, loss of earnings is calculated on a net basis. This means:
The goal is to ensure you are accurately compensated for your actual financial loss without being placed in a better financial position than you would have been if you were working.
While the initial lump sum you receive is tax-free, any future income earned from that money is generally taxable. If you place your compensation in an investment fund, the interest or dividends earned may be subject to capital gains tax (CGT)
There is a vital exception for individuals who are permanently and totally incapacitated as a result of their injuries. Under Section 189 of the Taxes Consolidation Act 1997, you may be exempt from paying tax on the income generated from the investment of your compensation.
This protection is particularly important in catastrophic injury cases, such as birth injuries, as it ensures that funds intended for a lifetime of care are not eroded by annual tax.
You can learn more about this exemption at Irish Statute Book: Section 189 of the Taxes Consolidation Act 1997
If you believe you have suffered harm due to medical negligence, it is important to seek legal advice as soon as possible.
Visit Medical Negligence Claims to learn more about our services or Contact Us to speak with a solicitor.
Whilst we cannot provide you with tax advice directly, we are well positioned to sign-post our clients to experts in many fields who can help injured patients, including tax professionals and forensic accountants.
In contentious business, a solicitor may not calculate fees or other charges as a percentage or proportion of any award or settlement.
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