PPI – it’s not re­ally over till you get your tax back

Gloucestershire Echo - - CASHING IN - MARTIN LEWIS ■ Martin Lewis is the founder and chair of Moneysavin­g­ex­pert.com. Get his free Money Tips weekly email at moneysavin­g­ex­pert.com/lat­est­tip

ON Au­gust 29 the guil­lo­tine fell on PPI re­claim­ing. It’s likely more than £40bn will be paid out. Yet many peo­ple wrongly had tax taken off, and can now claim it back. So, if you re­ceived a pay­out in the last four years or claimed just be­fore the dead­line (more than 500,000 did, in just the last two days, via my web­site alone), this is a must read.

TAX IS TAKEN OFF BE­FORE YOU GET YOUR PPI MONEY

THE money you get can have up to three main el­e­ments. ■ A re­fund of the PPI. ■ IF the bank (out­ra­geously) added an ex­tra loan to your orig­i­nal loan just to pay for PPI, you get back any in­ter­est charged on this ex­tra loan. ■ YOU get statu­tory in­ter­est (8% a year, not com­pounded) on the to­tal of both sums, for each year since you got PPI. It’s the statu­tory in­ter­est, which is tax­able – money paid out to try to re­turn you to the po­si­tion you would have been in if you hadn’t been mis-sold PPI. And – over­sim­pli­fy­ing some­what – it counts as sav­ings in­ter­est, as if you’d earned it on saved cash. Yet un­like sav­ings in­ter­est which is paid with­out any tax taken off, the statu­tory in­ter­est is au­to­mat­i­cally taxed at the ba­sic 20% rate – so £20 tax de­ducted for ev­ery £100. This ap­plies even if the pay­out paid off ex­ist­ing debts with the lender, or went to­wards claims firms’ costs, as you still ben­e­fit in the same way.

MOST PEO­PLE SHOULDN’T PAY TAX ON SAV­INGS.

ON April 6, 2016 the per­sonal sav­ings al­lowance (PSA) launched, al­low­ing ba­sic 20% rate tax­pay­ers to earn up to £1,000/year of sav­ings in­ter­est tax-free – higher 40% rate tax­pay­ers earn £500 and top 45% rate tax­pay­ers don’t get any­thing. The statu­tory in­ter­est from PPI pay­outs counts within this per­sonal sav­ings al­lowance. So if you had tax taken, and were a non-tax­payer or didn’t use your full per­sonal sav­ings al­lowance in the tax year you got your pay­out (it’s the date of the pay­out that trig­gers the tax), claim the tax back. If the to­tal in­ter­est earned from sav­ings and PPI statu­tory in­ter­est is less than your per­sonal sav­ings al­lowance, you’re due all PPI tax paid back. Yet if the com­bined amount pushed you over the thresh­old, you should only pay tax on the amount above it. For ex­am­ple… How much you’re due back de­pends on the size of your PPI pay­out and when you took out the loan. As a rough ex­am­ple, if you re­ceived a £1,000 pay­out on a loan taken out five years ago, you could re­ceive £60 tax back, or £100 if you took it out 10 years ago – but the amounts can be much larger, es­pe­cially for non-tax­pay­ers. To re­claim the tax, fill in an on­line R40 form (form R43 if liv­ing over­seas), which you can find at Gov.co.uk – you can post it back too if you need. It’s tricky to fol­low so I’ve put de­tailed help to fill it in, in my blog atmse.me/ppi­taxback. If you’re sttill strug­gling, call HMRC on 0300 200 3300 to dis­cuss. Higher or ad­di­tion­al­rate tax­pay­ers will need to de­clare the statu­tory in­ter­est to HMRC to en­sure they pay the cor­rect tax.

HMRC is ready to help with a claim

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