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Paymaster general Dawn Primarolo told MPs the exemption, to take effect from 5 August, will cost £1m and be worth £3,000 a year to each beneficiary of the trust.
Given to pregnant mothers in the late 1950s and early 1960s, Thalidomide led to thousands of babies being born with stunted limbs and other birth defects.
It means the 456 living survivors will be up to £60 a week, or £3,120 a year, better off.
Taxman lines up early exit from doomed Concentrix tax credits deal, as HMRC faces intense scrutiny from MPs
Crowe Clark Whitehill , the top 20 accountancy firm, has announced the promotion of Chris Mould to partner
The latest opinions from Accountancy Age on Making Tax Digital, and outline plans to evolve the UK's corporate governance regime
Five million taxpayers are ow using digital personal tax accounts (PTA) as part of the making tax digital strategy, HMRC said