Taxation on insurance compensation interest
Some years ago I claimed on buildings insurance for storm damage to a property I was renting out. The claim included disputed consequential damage, and the dispute dragged on for some years. Eventually I went to the financial ombudsman who agreed with my claim and ordered the insurers to pay up, which they did. They were also ordered to pay me a significant sum of interest for the delay in paying up. This interest was taxed at the usual rate of personal tax which was (as I recall) 20%, and I was provided with a certificate R185 of tax paid. Subsequently I claimed this tax back from HMRC, who refused on the grounds that for the year in question, my personal savings interest already exceeded the £1000 allowance, so that any further interest was taxable.
However, in all my researches, all I can find about the personal savings allowance is that it applies to interest from banks, building societies and the like, and the government web site says explicitly it relates to interest on personal savings.
My question is this: the interest clearly does not equate to earned income, so is not taxable on that basis. But equally it most certainly is not interest eaned on my personal savings. In fact, it is compensation for the delay imposed by the prevarication of the insurers. Surely that is no different in principle to the other compensation I received for the physical damage. So is this interest really liable to tax, and if so, why?
Thank you for your views.
★ ★ ★ Meet your Ambassadors
- All Categories
- 341.8K Banking & Borrowing
- 249.7K Reduce Debt & Boost Income
- 449.2K Spending & Discounts
- 233.9K Work, Benefits & Business
- 606.1K Mortgages, Homes & Bills
- 172.5K Life & Family
- 246.8K Travel & Transport
- 1.5M Hobbies & Leisure
- 15.8K Discuss & Feedback
- 15.1K Coronavirus Support Boards