PHI lump sum settlement

Dear Madams / Sirs, A few days ago I received a lump sum settlement of £265,000 from my permanent health insurance (PHI). As a condition of receiving the lump sum I had to give up all my future rights to payments. I agreed to that condition. The lump sum offer was a discretionary offer by the insurance and not a condition of the PHI policy. The insurance have stated in writing that this lump sum payment is not an advance of benefit due and it is not made up of accumulated benefits that are annual payments. The figure represents the claim’s present value and has been discounted to reflect any future possible changes in my medical, work or financial circumstances. My PHI insurance policy was originally taken out by my previous employer and my employer paid the insurance premiums. My employment ceased in 2018 by voluntary redundancy. This permanent health insurance (PHI) is a group insurance policy which was taken out and premiums were paid for by my previous employer where I was employed as an accounts clerk. My employment ended on 31 May 2018 by voluntary redundancy. Since 2018 when my employment ended, the monthly PHI benefit was paid to me directly by the PHI insurance, no longer by my employer. This was based on an agreement made between my previous employer and my PHI insurance. In the past the PHI insurance had paid monthly PHI benefit in connection with my work incapacity. My incapacity began approx. 25 years ago and is ongoing. I did pay income tax on the monthly PHI benefit payments. HMRC guidance IPTM 6140 states the following: *** BEGINNING OF QUOTE *** IPTM6140 - Sickness disability and unemployment insurance: lump sums to give up future rights to payments. Sometimes an insurer will offer a person a lump sum to give up all future rights to payments from the policy. Lump sums will be chargeable to tax in the hands of the recipient where they are made up of accumulated benefits that are annual payments and which do not qualify for exemption. They will be taxable as business income if the receipt is a trade receipt for the recipient – see BIM40750. Alternatively they may be taxable as employment or pension income – see EIM00670 and EIM75400. Most lump sums however will be capital, and not chargeable to income tax as savings or investment income or capital gains tax, whether or not the benefits were exempt – see CG69040 onwards. Lump sums may be payable by instalments, which would not change their character. However, if the total of the instalments is greater than the lump sum payable, it is likely that the excess represents interest and so may be subject to income tax. *** END OF QUOTE *** In accordance with HMRC guidance IPTM 6140 (as quoted) the lump sum should be tax-free. My received lump sum is absolutely not employment nor pension income. EIM00670 and EIM75400 do not apply to my situation. It is not business income either since I am not running a business, I am a private individual. BIM40750 does also not apply to my situation. According to IPTM 6140 guidance my lump sum – like most lump sums – is capital and therefore not chargeable to tax, whether or not the monthly benefit payments were tax-exempt or not. I would be grateful to receive your views regarding my tax position as explained above. In case that my assumption (the lump sum is not chargeable to tax) is wrong I would be most obliged if a detailed explanation could be given. Many thanks in advance.

Hi JUERGEN BAUER.
HMRC would need to see what the conditions of the payment were before this could be answered.
You will therefore need to provide evidence to
HMRC
PAYE & Self Assessment
BX9 1AS
Thank you. 

Thank you for your swift reply. However, I do not understand why other queries here receive support with tax issues based on the information given being trusted and I do not. I have already explained the conditions under which the payment was made. The information I have given is correct, but obviously I am not trusted for unknown reasons. Please kindly explain those reasons. All other people here are being trusted to give the correct information. I am instead asked to provide documentary evidence of my situation and write to HMRC, others are not asked to do so. Is this a form of discrimination? From my experience tax queries in writing take up to 10 months to receive a reply which is too long. Normally, in this forum everyone is trusted to give correct information. Obviously, I am not trusted for some strange reason. This is extremely unfair. I am hereby asking you once more to reply to my query. In case you continue to refuse answering my tax query, could you please kindly explain your com plaints procedure to me? Many thanks in advance. Yours faithfully, J.B.

Hi JUERGEN BAUER,
We are not in a position to provide answers to complicated questions that may require more information.  
We can only provide general advice, which we cannot do with your question.
Thank you.