Most personal injury compensation in the UK is paid as a single lump sum once your claim settles or a court makes an order. Payment typically arrives within 14 to 28 days of settlement. For serious, life-changing injuries, a periodical payment order (PPO) can provide regular, tax-free, index-linked payments for life. Interim payments are available before final settlement in urgent cases. All personal injury compensation is exempt from income tax and capital gains tax.
Understanding how and when you will actually receive your money is a common concern for claimants. This guide walks through the mechanics — the different payment methods, what gets deducted, the tax position, and what happens with children's compensation. We are an independent information service, not a law firm.
Lump sum payments
The vast majority of personal injury claims settle with a one-off lump sum. This covers both general damages (pain, suffering and loss of amenity) and special damages (financial losses). Once terms are agreed:
- The defendant's insurer sends the agreed amount to your solicitor
- Your solicitor deducts agreed fees, the success fee (if on a CFA), any ATE insurance premium, and disbursements
- The balance is transferred to your bank account
The whole process after settlement typically takes 14 to 28 days, though delays can arise if the Compensation Recovery Unit (CRU) certificate is awaited or if court approval is needed.
Periodical payment orders (PPOs)
For serious injuries with long-term care needs or permanent loss of earnings, a periodical payment order may be more appropriate than a lump sum. A PPO provides:
- Regular payments — usually annual — for life or a fixed period
- Index-linking — payments increase each year in line with an agreed index (often the Annual Survey of Hours and Earnings for care costs)
- Security — payments are guaranteed even if the insurer becomes insolvent, because the Financial Services Compensation Scheme (FSCS) backstops them
- Tax-free status — same as lump sum compensation
PPOs eliminate the risk of a lump sum running out. The court has the power to order a PPO under the Damages Act 1996 (as amended), and in serious cases must consider whether a PPO is appropriate. Many claimants receive a combination of a lump sum (for past losses, general damages and immediate needs) and a PPO (for future care and loss of earnings).
| Feature | Lump sum | PPO |
|---|---|---|
| Payment | One-off | Regular (usually annual) for life |
| Investment risk | You bear it — the money must last | Insurer bears it |
| Inflation protection | None (unless invested wisely) | Index-linked by court order |
| Flexibility | Full control over spending | Fixed annual amount |
| Tax | Tax-free | Tax-free |
| Typical use | Most claims; smaller to moderate injuries | Serious, life-changing injuries with ongoing care needs |
Interim payments
You do not have to wait until your claim is fully resolved to receive money. If liability is admitted or clearly established, the court can order the defendant to make an interim payment under CPR Part 25. Interim payments help cover immediate needs — medical treatment, rehabilitation, mortgage payments, home adaptations — while the full value of the claim is being assessed.
What is deducted from your compensation?
- Solicitor's success fee — if you are on a CFA (no win no fee), the success fee is capped at 25% of general damages and past financial losses (it cannot be deducted from future losses)
- ATE insurance premium — if applicable (see our ATE insurance guide)
- Disbursements — medical report fees, court fees and other costs your solicitor paid on your behalf
- CRU recovery — the Compensation Recovery Unit recoups certain state benefits (such as statutory sick pay, employment and support allowance) and NHS treatment costs from the defendant, not from you directly, but this reduces the amount available
Your solicitor is required to give you a clear, itemised breakdown of all deductions before you agree to settle.
Tax position
Personal injury compensation — both lump sums and PPOs — is exempt from income tax and capital gains tax in the UK. This applies to general damages, special damages and interest on damages. However, if you invest a large lump sum, the investment returns (interest, dividends, gains) may be taxable in the normal way. A financial adviser experienced in personal injury awards can help you plan.
Children and protected parties
If the claimant is a child (under 18) or an adult who lacks mental capacity, additional safeguards apply:
- Any settlement must be approved by a judge
- A child's compensation is usually held in a court investment fund until they turn 18
- An adult without capacity has their funds managed by a deputy appointed by the Court of Protection
These protections ensure the compensation is preserved for the claimant's benefit.
Frequently asked questions
How long does it take to receive compensation after a settlement?
Once terms are agreed or a court order is made, payment typically arrives within 14 to 28 days. The defendant's insurer pays your solicitor, who deducts agreed fees and disbursements before transferring the balance to you. Delays can occur if the Compensation Recovery Unit (CRU) certificate is awaited or if court approval is needed for a child or protected party.
Is personal injury compensation taxable?
No. Personal injury compensation in the UK is exempt from income tax and capital gains tax, whether received as a lump sum or periodical payments. This applies to both general damages and special damages. However, if you invest a large lump sum and earn interest or returns, those investment returns may be taxable in the usual way.
What is a periodical payment order (PPO)?
A PPO is a court order requiring the defendant's insurer to make regular, usually annual, payments to you for life (or a set period) instead of a one-off lump sum. PPOs are typically used for future care costs and lost earnings in serious injury cases. The payments are index-linked, tax-free, and guaranteed even if the insurer becomes insolvent.
What deductions are made from my compensation?
Your solicitor deducts their success fee (if on a CFA, capped at 25% of general damages and past losses), any ATE insurance premium, and disbursements. The Compensation Recovery Unit may recoup certain state benefits and NHS charges from the defendant before you are paid. Your solicitor must give you a clear breakdown before settlement.
Can I get money before my claim is settled?
Yes, through an interim payment. If liability is admitted or clearly established, the court can order the defendant to make a payment on account before the final settlement. Interim payments help claimants meet immediate needs such as medical treatment, rehabilitation, mortgage payments or adaptations to their home.
What happens to compensation for a child or someone who lacks mental capacity?
Compensation for children is held by the court until they turn 18 and the settlement must be approved by a judge. For adults who lack mental capacity, the Court of Protection manages the funds through a deputy. These safeguards protect vulnerable claimants from having their compensation misused.
Get help from official, free sources
- Solicitors Regulation Authority (SRA) — check a solicitor is regulated
- The Law Society — Find a Solicitor — accredited PI specialists
- GOV.UK — Court of Protection — information for protected parties
- Citizens Advice — free, impartial guidance
Related guides: how compensation works, special damages explained, interim payments, no win no fee, and compensation recovery and benefits.