UK Withholding tax on interest from PPI claim

Ixashe

I've just received a settlement offer for a ppi claim I've been pursuing for a few years. The 8 years worth of interest adds up to about £2000, and the bank have deducted about £400 of this for withholding tax. I'm not currently a UK taxpayer. I've been on an unpaid career break since Jan 2011 and so my only taxable income is carers allowance, although my wife works full time.

My first question is that if even including the amount of interest as income I won't be above my tax free allowance, so should the withholding tax be deducted from the payment, or does it have to be deducted and reclaimed from the inland revenue? Is the interest classed as income for this year only, or is spread out over the years it was earned and so I would have to pay 5/8ths of it because I was a tax payer for 5 or the 8 years it accumulated? And whichever way it has to be done, how do I go about doing it?

Secondly, how does the interest payment effect my child tax credits? My wife works full time so we are just above the amount where the ctc begins to taper at 41%. Do I have to declare the interest as income for this year and so have my tax credit award reduced by 41% of amount of interest, or is there an exemption for this?

Thanks, Paul.

amersall

I would inform the Tax credits to be on the safe side, same with HMRC, ask about getting the tax back as you are a non taxpayer.

This tax is sometimes taken at source by the banks automatically, this interest counts for the year it was paid out in.

If this was a joint loan then your partner will pay tax on some of this as they are working and a taxpayer, just contact HMRC and they will help you.
Hopefully someone who is in a similar situation to you may post up more info.