When the Thalidomide Trust was set up in 1974, it was subject to the same rules that govern payments from all discretionary trusts. Under those rules, payments from Trust income counted towards the victims’ taxable income and also reduced their level of entitlement to tax credits.
In 2004, following consultation with the then Inland Revenue, the trust agreed to change the way it makes payments to victims so that they could be classified as “periodical” payments and potentially fall within the scope of legislation governing “structured settlements”. The Treasury were then able to make use of a power bringing those periodical payments by the trustees to Thalidomide victims within the scope of a relief aimed at structured damages settlements arrived at by agreement between the parties or by order of a court.
The new legislation took effect from 5 August 2004, after which payments from the trust to victims have not counted as income for the purposes of calculating the victims’ income tax liabilities or their entitlement to tax credits.