The recent decision of the House of Lords, in British Transport Commission v. Gourley has completely changed the English position on the question of whether income taxes should be considered in determining personal injury damages based on actual or prospective loss of earnings. The House of Lords held that the lower court should have taken the tax aspects into account and that the damage award must be reduced accordingly. By this holding, the House of Lords overruled Jordan v. The Limmer And Trinidad Lake Asphalt Co. and Billingham v. Hughes, which until then represented the ruling law in England on the subject.
The part income taxes play in determining damages for loss of earnings is a question of real importance in view of the present income tax rates and the high scale of personal injury awards, plus the fact that beginning with the Revenue Act of 1918 personal injury damage awards have been expressly excluded from gross income under the United States Internal Revenue Code.
Surprisingly enough, there are relatively few cases in which the problem has been at issue. The first English case in which the matter arose was decided in 1933. The question has been decided, with conflicting results by only two American state supreme courts.
Doris B. Gorman,
Consideration of Tax Aspects in Awarding Damages for Personal Injuries,
9 Vanderbilt Law Review
Available at: https://scholarship.law.vanderbilt.edu/vlr/vol9/iss3/6