Question to the HM Treasury:

To ask the Chancellor of the Exchequer, what steps her Department is taking to ensure that compensation awarded to armed forces (a) veterans and (b) their families is not classified as income.

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.

For compensation paid under some schemes, specific tax treatment applies. Current and former armed forces personnel can claim compensation for any injury or illness which was caused by service. Family members may claim for compensation for personnel whose death was caused by service. Payments made under the Armed Forces Compensation Scheme are tax free. More information can be found at:

https://www.gov.uk/guidance/armed-forces-compensation-scheme-afcs

The Armed Forces Compensation Scheme applies from 6 April 2005. Claims for injuries, illnesses or death prior to that date are covered by the War Pensions Scheme, which also compensates using tax free payments.