PPI – it’s not really over till you get your tax back
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.
Martin Lewis is the founder and chair of MoneySavingExpert.com. Get his free Money Tips weekly email at moneysavingexpert.com/latesttip