PPI Payment Confirmation - Confused on TAX

jon1981

Hi Guys

Ive had confirmation from LloydsTSB that they will be paying out for my PPI claim.

Now The Loans are broken down into the following categories:

- Refund of Premiums
- Interest at 8%
- Excess Balance and Interest*

* This is an additional payment we offer to refund the extra amount you paid when you refinanced the loan/PPI which we are offering to refund. As your earlier loan included PPI the outstanding balance on that loan, which you carried over to the next loan, was higher than it would have been without PPI and therefore you paid a higher payment and more interest when making your repayments on the next loan. Our offer of the Excess Balance and Interest is a refund of the extra amounts paid by you with associated interest.

So when receiving the cheque/Direct payment will I

a) Have to contact Inland Revenue about making a payment
b) If so what is taxable from the above amounts?
c) Is tax charged at 10% of the value?

Thanks

dilus

jon1981 wrote: »

Hi Guys

Ive had confirmation from LloydsTSB that they will be paying out for my PPI claim.

Now The Loans are broken down into the following categories:

- Refund of Premiums
- Interest at 8%
- Excess Balance and Interest*

* This is an additional payment we offer to refund the extra amount you paid when you refinanced the loan/PPI which we are offering to refund. As your earlier loan included PPI the outstanding balance on that loan, which you carried over to the next loan, was higher than it would have been without PPI and therefore you paid a higher payment and more interest when making your repayments on the next loan. Our offer of the Excess Balance and Interest is a refund of the extra amounts paid by you with associated interest.

So when receiving the cheque/Direct payment will I

a) Have to contact Inland Revenue about making a payment
b) If so what is taxable from the above amounts?
c) Is tax charged at 10% of the value?

Thanks

Hi jon1981,
You only have to pay tax on the 8% interest figure and it is at whatever your income tax rate is 20%, 40% or 50% for higher rate tax payers

jon1981

Thanks for the quick reply, so the other payment what reason is it that I dont need to pay tax on this?

dilus

jon1981 wrote: »

Thanks for the quick reply, so the other payment what reason is it that I dont need to pay tax on this?

Hi jon1981,
You only pay tax on the 8% interest as this is basically compensation for not having that money in a savings account and any interest on savings is liable to tax, therefore the 8% interest is taxable.
If you hadn't been paying the PPI that money could have been invested elsewhere so the FOS came up with 8% as a figure the banks had to use. As it turns out it is very generous as you would have probably found it impossible to get that rate on savings over the last 10/15 years

jon1981

Thanks again thats a great help, whats the difference therefore between the interest payment and the other Excess Balance and Interest* - surely this is in the same category?

dilus

jon1981 wrote: »

Thanks again thats a great help, whats the difference therefore between the interest payment and the other Excess Balance and Interest* - surely this is in the same category?

PASS
Declare the 8% and you will be safe from the tax man
The excess balance and associated interest is due to the re financing of the loan, you get a rebate of PPI due to settling the loan early

jjr197

The Premiums and Excess interest are both "refunds" of money that you paid to them. They are simply giving this back, the same as if you return goods to a shop and get a refund.

The 8% interest is "extra" compensation. You didn't pay this to them in the first place, so it is earned income. It therefore needs to be taxed.

You only need to declare the 8% to HMRC. They will most likely change your tax code to get the tax off you that way, although you can offer to pay immediately - but then you'll have to know what rate to pay it at (relatively easy to work out for most people).

Jimi

GillianY1

Sorry to hijack this thread, but I have just been asked a similar question by my mother in law. She has received her PPI money and was asking what she has to declare to the tax office. She is a low rate tax payer, so i presume from this thread she only has to declare the interest amount then this will be taxed at 20% (ie if the interest amount is £1000 then she has to pay £200 in tax?)

Thanks

amersall

It is only the 8% that needs to be declared and tax will be 20%.
She could ask for this to be taken back over the next tax year,they can adjust the tax code and change it back when the surplus has been paid.

It depends on who you talk to at the tax office if they want it in one lump sum,or over the tax year.