Lump Sum compensation

KL0

I have recently been offered compensation for an injury a lump sum of 120k. I have however been given the option to receive these funds spread out over 15 years. My question is which option is better in the long term as I will have to live of this for the rest of what was my working life? The amount I believe is not indexed linked if I was to receive it annually but I'm concerned about tax thresholds etc. Any help would gladly be received.

qpop

Absolutely receive it now.

If you get it now you could (for example) invest the lump sum in an equity income fund and receive income of 4-5% (£5k PA net of taxes assuming you're basic taxpayer) without withdrawing capital (obviously there is capital fluctuation in this kind of fund).

Or you could put it in the bank and earn 2.4% (£3k PA net of basic rate tax). Again, without touching the capital

AFAIK there's no tax on insurance payouts.(Please check this though)

If you take it over a period of years all they'll do is earn the interest, and pay you less overall (due to the time value of money). They'll be laughing all the way to the bank.

SliAbhaile

Take it now - I wouldn't trust anyone to honour such payouts over a fifteen year period. Call me paranoid but that's me.

Take expert advice (not internet forum) on the taxation issue. For example, I received a constructive dismissal settlement some years ago and I remember only the first £30,000 was free of tax, anything thereafter was taxable. Speak to an accountant.

gadgetmind

KL0 wrote: »

I will have to live of this for the rest of what was my working life

So you're not working? Are you receiving any benefits that this money might interfere with?

qpop

I wonder, if it is a PHI style payout, if this is relevant:

10. My insurer has offered me a lump sum to give up the right to future benefits. Is this tax free?

There is no tax to pay on this sort of lump sum unless:

• benefits are paid under an employer's or former employer's scheme and you did not pay the premiums, or pay tax on the premiums, that relate to your benefits, or
• the policy would have paid out a sum on death, or is a life annuity or a capital redemption policy.

Ask your Inland Revenue office for help if you are not sure whether or not your lump sum is taxable.

(taken from http://www.hmrc.gov.uk/individuals/taxexemption.htm#10 )

xylophone

http://www.adviceguide.org.uk/index/your_money/tax_index_ew/taxable_and_non-taxable_income.htm

According to the above Other income which is non-taxable -
compensation or damages awarded for personal injuries whether received in one lump sum or over a period and whether awarded by a court or out of court settlement

Are you saying that you are too badly injured to work again?

Have you investigated what benefits you should be claiming?

If you take the lump sum, you will presumably invest it in some way and the income could be taxable depending on your personal situation.

I think that you would need to give more details before anyone could offer sensible suggestions.

KL0

Thank you for your advice. I'm able to work but only part time. I'm on benefits and as I understand when I get my compensation payment I will have to pay back these benefits that I have received.