Tax exemption for compensation and insurance payments to children for personal injury or loss of provider

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Favourable tax rules apply to children and young people who receive payments from compensation or insurance as a result of personal injury or loss of provider.

With effect from the 2012 income year, the following payments to children and young people under 22 years of age are exempt from tax on the capital:

  • Lump-sum compensation for personal injury or loss of provider
  • Lump-sum compensation from accident, sickness or disability insurance in the event of injury, illness or disfigurement
  • Lump-sum compensation from accident or life insurance in the event of loss of provider

In the case of injury compensation, the compensation must have been awarded in accordance with the principles set out in Chapter 3 of the Injury Compensation Act or the Occupational Injury Insurance Act. In the event of a child suffering personal injury, there is no longer a requirement concerning the amount by which the child's earning capacity must have been reduced.  

The wealth tax exemption applies until and including the income year in which the child/young person reaches the age of 21. 

The exemption from wealth tax applies regardless of how the sum is invested, e.g. in the form of bank deposits, annuities, property, car, etc. There must be a sufficient link between the insurance/compensation sum and the investment of the amount. The tax exemption is limited to the original insurance/compensation sum, or to the proportion of the original amount which was still retained as of 1 January 2015. 

The changes do not have retrospective effect

The group of injured persons who receive an exemption from wealth tax was expanded with effect from 2012.

The rules lead to the equal treatment of injury compensation and the personal insurance types referred to above in terms of tax. 

The changes do not have retrospective effect for the years prior to 2012. This means that insurance beneficiaries who received payments in an earlier year will not be entitled to change their tax assessment for 2011 or earlier income years. Nevertheless, the wealth tax exemption will apply to subsequent years. If the child/young person received a payment in 2006, for example, and the amount is still intact, the wealth tax exemption will apply with effect from 2012 onwards until the income year in which the child/young person reaches the age of 21.

When the child is under 17 years of age

The income and capital of children under 17 years of age will normally be assessed jointly with the parents.

The capital and return (interest, etc.) on the compensation sum or insurance sum will then be assessed separately if this results in lower tax than assessment jointly with the parents. Separate tax assessment of the interest income will ensure that the child receives his or her own personal allowance in connection with the assessment of income. If accumulated interest from previous years has resulted in capital being built up, this will not be covered by the wealth tax exemption. Such capital may be assessed separately for the child, who will then have his or her own tax-free amount in connection with the assessment of capital. The Tax Administration will perform the calculation that is most favourable. The tax will be stated in the parents' tax settlements and the child should therefore not submit his or her own tax return concerning the compensation/insurance payment.

Tax deduction card for 2017

If you have children that have received:

  • One-time compensation for personal injury or loss of cover
  • One-time payment of accident, sickness or disability insurance in case of injury, illness or illness
  • One-time payment of accident insurance or death insurance on loss of cover

You should check the tax deduction card. You should change the tax deduction card with some information about the child's assets / interest income from the claims received.

How do I enter the information in my tax return for 2016?

To enable us to calculate the correct tax reduction for the lump-sum compensation or insurance payment, the following information must be given under Additional information (item 5.0 in the tax return):

  • total original compensation/insurance sum
  • year of payment
  • the amounts in the tax return for 2016 which refer to the compensation/insurance sum. This may be interest income, rental income, share dividends, bank deposits, annuities, property, car, etc.

N.B.! You must not alter the amounts under the items in the tax return.  

You do not need to submit documentation with the tax return, but you must be able to present it upon request. 

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