Tax on PPI Interest

angbur

I have recently had a claim settled for PPI (well the claim confirmed I'm still waiting for them to actually pay it).

The total amount (PPI premium + Interest) comes to a little more than my outstanding loan. I have agreed to have the loan repaid and receive the leftover money (only about £40) paid to my account.

The letter though states that the interest element of this repayment may be subject to taxation. However I'm not sure whether tax will need to paid on the whole settlement, i.e. what the bank use to clear the loan (even though I will never actually see this money), or just on what I receive into my account.

Can anyone help?

Derwent

Tax will need to be paid on the amount paid to you as 8% simple interest. It doesn't matter whether it is paid directly off your loan or directly to you, the tax will still be due.

angbur

Derwent wrote: »

Tax will need to be paid on the amount paid to you as 8% simple interest. It doesn't matter whether it is paid directly off your loan or directly to you, the tax will still be due.

Thanks very much, that's really useful

peadars

derwent you seem to know about tax am i to understand that the other interest is the interest we have paid to the bank and the simple interest is like interest on savings so taxable i thank you in advance.

magpiecottage

There are two aspects to the interest. There is a reversal of all interest you have paid that would not otherwise have been paid to the lender. This is part of your redress and is not taxable because it is a refund of your own money.

This calculation may result in periods when your account is in credit. For those periods you receive 8% per annum simple interest (that is simple as opposed to compound - you do not get interest on interest). This interest IS taxable but most banks will deduct Basic Rate tax and pay it straight to the tax office. They should then give you a certificate of tax paid.

peadars

hi magpie cottage and thank you for making this clear,and keep up the fantastic work you do. i follow your comments with interest and learn something new each time you all deserve a special award for the time devoted to helping others and i am very gratefull for all the advice thanks again