Compensation being taxed?

henryhallsdanceband

One of my endowment companies has agreed to pay me compensation for mis-selling but they tell me they have to deduct tax from the compensation. They are going to deduct it at the standard rate but say if I'm a higher rate payer I'll have to pay at that rate. How come? Apart from anything else it's in both of our names (wife and I) and she doesn't pay tax.

elantan

i would like to know this one too as i just found out today i will get some money back

dunstonh

It interest is being added to the redress, then they are correct to deduct tax. Non taxpayers can claim theirs back (or their share) via self assessment (either the full or short form). You should get a certificate of interest and tax paid confirming the amounts.

henryhallsdanceband

My endowment provider has agreed that I was missold my policy with them from a 'risk' perspective, and also that the broker I bought the policy through should not have advised me to make an exisiting policy 'paid up' after I had been paying into it for seven years and move all the endowment tothe new one.

They are paying (I think) 15% interest on my payments for that seven years (then deducting the amount I got when I made it paid up), then 5% interest on that subsequent amount from then to the present day.

I assume therefore that I will be required to pay tax on the interest.

A supplementary question would be at what rate should I pay tax? My current rate - or the rate prevalent for each year interest was added?

If the latter who on earth has to do the calculation - me or the tax man?

dunstonh

The interest is calculated in this tax year as this is the year that it is being paid in.

henryhallsdanceband

I'm a higher rate tax payer - my wife is a standard rate tax payer. Even although the original endowment was in only my name could I get the compensation paid into a savings account that is only in my wife's name - thereby avoiding the 40% tax on the compensation.