Question to the HM Treasury:

To ask the Chancellor of the Exchequer, what criteria the Government uses to determine whether payments made under a Government compensation scheme are exempt from (a) income tax and (b) inheritance tax.

Some payments made under Government established compensation schemes will not give rise to an income tax liability. This is because payments intended to compensate individuals for personal injury would generally fall within established tax principles that treat compensation for personal injury as non-taxable. If payments are made which specifically represent loss of earnings, they will be subject to income tax under miscellaneous income rules.

Beyond this, tax exemptions for individual schemes will be considered on a case-by-case basis.

Given the historic nature of the Infected Blood Scandal and the reduced life expectancy of Infected Blood recipients, many individuals will have passed away before they could receive their compensation. This means that concerns around the impacts of secondary transfers are particularly acute in the case of Infected Blood compensation. For this reason, we have taken steps to extend the inheritance tax relief for this scheme.