PPI Tax Reclaim

PKParks66

Hello,

Dealing with my late wife's estate, there's a PPI payout for a joint policy from 2018. It is in both our names and was paid into a joint account. 
The interest paid was a little over £2000. I was a high rate tax payer at the time, and my wife was on standard rate.

I presume I should fill out 2  R40 forms with the amount split equally between us? Sending it in with a covering letter explaining the situation.

If it's dealt with that way, my calculations are showing I underpaid tax by a small amount, and a couple of hundred pounds should be owed to my wife's estate.
All our savings were in ISAs so there's nothing else to add to the tax bill.

Hopefully I won't be hit by excessive penalty charges.

Thanks

Dazed_and_C0nfused

Was the PPI related interest paid before your wife died?

What penalty charges do you think could apply?

PKParks66

Hello Dazed and Confused,

Was the PPI related interest paid before your wife died?   Yes, although she was quite ill by that stage and the need to inform HMRC that this had been taxed at 20% for me instead of 40% did not occur to me.

What penalty charges do you think could apply?   The standard charges for not informing HMRC of my underpayment.

Thanks,

Dazed_and_C0nfused

An R40 seems appropriate for your wife and if you haven't been asked to file a Self Assessment return then an R40 would be ok for you as well.

Although a letter would probably suffice (for you).

If you don't owe any tax then I would have thought your £1,000 would be taxed £500 x 0% and £500 x 40% = £200 so £200 due.  But £200 already deducted by the company that paid the interest so nothing to pay.  If it was say £1,100 interest then £500 x 0% and £600 x 40% = £240 but only £220 deducted at source so £20 owed.

I'm not sure what "standard charges" you are referring to but I doubt very much you will have to pay anything other than the tax owed.  

One situation where it could be different is if the interest meant you now meet the criteria for Self Assessment i.e. income over £100k or High Income Child Benefit Charge could be due.

PKParks66

Thanks Dazed and Confused,

That was very helpful.

Interest paid between us was £2077.83 with £415.57 deducted at source.

For me £1038.92 interest then £500 x 0% and 538.92 x 40% = £215.57 but only £207.79 paid. So I owe £ 7.78

For my wife £1038.92 interest then £1000.00 x 0% and £38.92 x 20% = £7.78 and £207.79 paid. So she is due a refund of £200.01

So in total the refund would be £ 192.23 

I'm now retired so no longer a high rate taxpayer.

Dazed_and_C0nfused

Could your wife's income mean she would have the savings starter rate band available?

It's upto £5,000 interest taxed at 0% and is available when the Personal Allowance has been used up but less than £5,000 of pension/earnings/self employment/rental income has been taxed at basic rate.

PKParks66

Could your wife's income mean she would have the savings starter rate band available?  - Yes I think that is possibly the case.

Dazed_and_C0nfused

PKParks66 said:

Could your wife's income mean she would have the savings starter rate band available?  - Yes I think that is possibly the case.

Then the whole £207.79 is likely to be due back.