Do I need to pay tax on a lump sum?

dyst_2

I'm in a position where I will receive £40K approx in the near future.  This is from my local council because they have overcharged me for my care costs for ten years.  I was wondering, do I need to pay tax on this, and if so how do I do it please? (I have never worked due to disability, so have no knowledge of tax etc, but a lot of the info online is focussed on earned income).

Nomunnofun1

No - you won’t - in the same way that you didn’t claim tax relief on the payments that you made. 

eddddy

I'm no expert on this, but my understanding is...

If they are simply refunding overpayments - there should be no tax to pay.

But if interest is being added to the refund - the interest is likely to be taxable.

(Others can confirm/refute.)

badmemory

The tax on the interest will depend on your taxable income.  It is highly likely that it may well fall in the part that is taxed at 0%.  I suspect that the paperwork from the council will include notes on what is and what is not taxable.  I know it seems silly to have something taxed at 0% but that is the way HMRC do it.  Unless you have a lot of taxable income then you should have at least £1000 of interest that is taxed at that 0% rate.

Do you remember that old advert about tax not being taxing?  They should have been reported to advertising standards.