Tax on PPI pay outs

PPI Claim

 

If you have received a PPI pay out in the last four years, or receive a pay out in the future, you could be eligible to claim back tax which was deducted at source.

 

 

A PPI pay out is made up of two separate calcualations:

  • Compensation - This is the refund of the PPI premiums paid and the interest paid on those premiums.
  • Statutory interest - This is calculated at 8% of the compensation, paid in recognition of the fact that you were deprived of your money for a considerable time.

 

The statutory interest is the element that is taxable (in the tax year that you receive it). Your circumstances in the tax year(s) in which you paid the original premiums are not relevant.

 

Although the statutory interest element is treated for tax purposes as savings income, it is not paid gross like bank interest. Most of the time, basic rate tax is deducted at source on the interest element of a PPI pay-out before it is paid to you. The tax is then passed to HMRC on your behalf.

 

However, not everyone will automatically be liable to pay tax on this statutory interest element.  For example,if when combined with your other savings income for the year and the total is within your Personal Savings Allowance (£1000 for a basic rate tax payer and  £500 for a higher rate taxpayer) or if your total taxable income for the year is within your tax-free personal allowance – £12,500 in 2019/20. If this is the case, it is possible to claim back the tax which has been deducted at source.

 

You can make a claim for a tax repayment on your PPI interest using form R40. You can either do this online, or by downloading and printing off a paper form to send by post. You can access the form on GOV.UK, together with instructions about how to complete the form.

 

You normally have four years from the end of the tax year in which the overpayment arose to claim a refund. So, if you received your PPI refund in 2019/20, you have until 5 April 2024 to submit a claim.