Interest Tax Paid on PPI reclaim

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Hi,
I recently filed a complaint to a mortgage lender on behalf of my late mother (passed away 7 years ago) as executor of her estate. At the time I had to pay off several of her debts with new lending in order to retain a property that would have otherwise been sold to settle the estate. The complaint was upheld and a substantial refund was paid. However the bank also paid the 20% tax on the interest (approximately £750) direct to HMRC, subtracting it from the interest paid to me.

I personally am employed and my only income is my salary, I do not make any income from existing savings or interest.

I spoke to HMRC several times and I had different answers and told to fill out a R40 however I am still very confused about what the situation is here. I hope to find someone more versed in UK tax law that could clarify if this Tax payment is legitimate.

My specific questions are:
1. Has the tax subtracted been paid by me personally or is it by my mothers estate?
2. If it is by the estate, is the estate eligible for an interest tax rebate?
3. If it is me personally, am I eligible for a interest tax rebate?
4. Any other tax considerations as beneficiary?

I have a few other PPI complaints I plan to initiate to her other lenders so some clarification on this would help me a lot.

Thanks!

Comments

  • [Deleted User]
    [Deleted User] Posts: 26,612 Forumite
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    Steiner84 wrote: »

    I spoke to HMRC several times and I had different answers and told to fill out a R40
    That is exactly what you should do.

    Only if you are a non-taxpayer will you receive any refund, however, since it you who are the recipient of the redress and the tax is taken from this redress not from your late Mother's Estate.

    By filling in R40, you can be sure the correct amount of tax has been taken and that you get any refund that may be due to you. You'll also know your personal tax position with regard future further complaints which might also be awarded in your favour.
  • Steiner84
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    Hi,
    Thanks for your reply. The R40 form asks for the years income information and is written like I am applying for the previous tax year. Do I need to wait until my next P60 or do I just estimate this years earnings based on my salary?

    Thanks
  • [Deleted User]
    [Deleted User] Posts: 26,612 Forumite
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    Steiner84 wrote: »
    Hi,
    The R40 form asks for the years income information and is written like I am applying for the previous tax year. Do I need to wait until my next P60 or do I just estimate this years earnings based on my salary?

    Contact HMRC for any help you need filling in form R40, since they are far better situated to tell you the information they require and how it should be presented.

    BUT, you won't be getting a refund unless you are not a taxpayer.

    If you believe the total income from your job plus the redress (gross) amount leaves you still below your annual tax free allowance, then you should apply for a refund.
    Since I doubt it will be the case that you have been overtaxed, it's really up to you how you want to proceed. Do you currently pay income tax? If so, you are likely wasting your time pursuing this I'm afraid.
  • Steiner84
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    Hi,
    Again I appreciate your response. Regarding advice on the R40, it doesn't sound like you have tried to call HMRC recently... 15 minutes on the phone to a robot, then 30 minutes waiting to have a 1 minute call on a crackly phone line to a person that wasn't very helpful.

    I do pay income tax. I am over my tax free allowance so I would not get a refund, and thought I would be wasting my time. However I also read on HMRC website you can have up to £1000 tax free interest on savings (I am unable to post the link but this is from the site):

    Tax rate Income band (adjusted net income) Personal Savings Allowance
    Basic 20% Up to £43,500 Up to £1,000 in savings income is tax-free

    which would indicate that the full £750 could be refunded if the PPI interest tax is regarded as savings interest, which I have also read in various unofficial places that it is.

    I guess there is no harm in filling out the form and see what happens.
  • Dazed_and_confused
    Dazed_and_confused Posts: 6,458 Forumite
    Uniform Washer
    edited 21 June 2018 at 7:42PM
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    You are getting confused with the £1000.

    Savings interest (which includes PPI interest you are referring to) is taxable income but basic rate taxpayers can get a maximum of £5,999 of savings interest taxed at 0% tax rates.

    Low earners (wages, pension income etc) can make use of the starter savings rate band which allows a maximum of £5,000 interest to be taxed at 0%.

    However if your wages or pension income is £16,850 or more then you don't get the benefit of this but could instead the get a similar 0% rate band called the Personal Savings Allowance (this is either £500 or £1,000 taxed at 0%).

    However to have had £750 tax deducted would indicate the taxable interest was actually £3,750. Basic rate tax deducted on £3,750 would be £750.

    So unless you are a low earner the maximum refund you are likely to get is £200 i.e. £1,000 of the interest being taxed at 0%. The rest of the interest remains taxable at 20%.

    If you are a higher rate payer (or the interest takes you into higher rate tax) then you might actually owe extra tax rather than being due a refund.

    If the interest has been paid in the current tax year then there is no point in completing the R40 until this time next year when you will have your P60 and any other information to complete the R40 tax return for 2018:19

    NB. All the above is on the assumption you aren't Scottish resident for tax purposes.
  • Steiner84
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    Hi,
    Thanks for the information. Yes that's correct on the interest, I misunderstood that to mean £1000 worth of tax. Still potentially 200 there worth looking into. I am resident in Scotland, not sure if that makes a significant difference for the tax rules around this, I should have stated that at the beginning.

    For now I will concentrate on the other ppi complaints and maybe go back to this at the end of the tax year as you have suggested.
  • Dazed_and_confused
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    The difference with Scotland is that they have a much lower threshold before higher rate tax is payable.

    So the interest may take you into the higher rate bracket whereas in the rest of the UK that is less likely in the current tax year.
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