Tax on Mis-selling Settlement

frenchmaster

Hi,
I have been offered a settlement on an Endowment mis-selling, whereby the Insurer will refund all my premiums plus interest, but void the Policy.

However the interest they have offered in subject to Tax at 20%, despite the policy running for over 10 Years. I phoned the Inland Revenue and queried with their Guidnce Sheet IR 320, but was told by a lady that "she thought" tax was due despite the policy running for 10 Years.

Has anyone encoutered this and found a legal ways to avoid the tax?

As a higher-rate Taxpayer will I be liable for 40% tax ?

I would appreciate comments.

dunstonh

The 10 year rule doesnt apply as the endowment is not being surrendered. You are getting the premiums returned plus interest and interest is taxable at your highest rate (ie 40%).

I take it that this wasnt considered a mis-sold endowment in the repayment/interest only sense but a policy that should never have been sold at all in the first place?

frenchmaster

Hi dunstonh,

thanks for reply.

Yes Ithe nsurers have make the offer on the basis that the Policy should have not been sold in the first place. Would it be worth asking the Insurers to make the compensation as a mis-sold policy and hence the 10 year rule would apply ?

If they will not agree, could I reduce the Tax to 20% by having the payment made to my wife who is not a high rate tax payer ?

Any replies appreciated.

dunstonh

The interest will be paid based on who is the policyholder. However, you could always make the adjustment via your tax return by allocating part/all of it to your wife.

The method of compensation is correct for the type of complaint that was upheld. I doubt they will alter it but you could always try.