The new Horizon Family Members Redress Scheme exemption is a welcome example of Parliament choosing to ensure that redress is received in full, free of income tax, corporation tax, capital gains tax and inheritance tax.
That matters because compensation is not always tax-free. In Gadhavi Bros v HMRC, compensation paid by banks for mis-sold interest rate hedge products was held to be taxable income, because it was in substance a revenue receipt linked to business costs and liabilities, not a purely capital award.
Likewise, in the compensation case involving payments made by the United Nations to businesses affected by the Iraq war, the tribunal again concluded that the receipts were taxable, reflecting their connection with business profits or income replacement rather than a capital wrong.
The lesson is that the tax treatment of compensation depends on what the payment is really compensating for. Some sums are tax-free because they are personal, capital, or specifically exempted by statute; others are taxable because they replace income, trading receipts or deductible expenses.
Against that background, the Horizon rules are notable because they remove uncertainty and protect the full value of the redress. For advisers, the key point is to identify whether a payment falls within a specific exemption or instead must be analysed under the ordinary principles governing compensation receipts.
Exemption for Horizon Family Members Redress Scheme: From 22 July 2026, payments received under the Horizon Family Members Redress Scheme by families of postmasters adversely affected by the Horizon scandal, will be exempt from income tax, corporation tax, capital gains tax and relieved from inheritance tax. (SI 2026/717)
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