Martin Lewis appeared on This Morning today to inform viewers about PPI tax. The deadline for reclaiming mis-sold PPI was last Thursday, and Martin said those who missed the deadline could still be eliible under exceptional circumstances. He advised them to contact the bank and explain. However the money expert revealed that those who managed to meet the deadline could also be owed tax, which they would have paid on their pay out money. Speaking to the ITV show viewers, he said: “The opportunity to reclaim mis-sold PPI ended last Thursday, and over the past decade or so, on the back of my heavy campaigning on reclaiming mis-sold PPI, hundreds of people have got in touch to say they’ve successfully claimed mis-sold PPI.”
He added: While the average pay out is £3,000, the biggest ever personal reclaim I’ve heard was for £153,000. “But importantly, what many don’t know is that on their PPI pay out money, you would have paid tax on it, which most shouldn’t have, so you can reclaim it back.”
Why is tax taken off PPI pay outs?
Martin revealed that the money people are paid back from mis-sold PPI can have up to three main elements, which include:
– A refund of the PPI that was paid
– If the bank added an extra loan to the original loan just to pay for the PPI, customers get back any interest they were charged on this extra loan.
– Customers get statutory interest (at eight per cent a year, but not compounded) on the total of both those sums, for each year since they got the PPI.
He continued: “However, of these only the third element is taxed at the basic 20 pre cent rate – so £20 tax deducted for every £100 of statutory interest. That’s because this statutory interest is paid to try and return you to the position you would have been in, if you hadn’t been mis-sold PPI.
“Therefore it counts as savings interest as if you’d earned it on your saved cash. This applies even if the PPI pay out was used to pay off existing debts with the lender, or went towards claims firms’ costs, as you are still benefiting in the same way.”
On 6 April 2016 the personal savings allowance (PSA) launched. It allowed basic 20 per cent rate taxpayers to earn up to £1,000 a year of savings interest tax-free, higher 40 per cent rate taxpayers can earn £500 and top 45 per cent rate taxpayers don’t get anything. The statutory interest from PPI pay outs counts within personal savings allowance.
As a result, the expert revealed that some people could be be owed tax.
Martin continued: “Yet unlike savings which are now paid without any tax taken off, PPI pay outs still automatically have 20 per cent tax deducted before you received it. So if, like most people, you haven’t earned over your PSA in the year your PPI claim was repaid, then you can claim it back.”
How to reclaim it?
In order to claim back tax, customers will have to fill in an online R40, which they can also post. Those living overseas will have ti fill in a R43 form.
Martin advised viewers that the form is quite tricky, and directed customers to follow his blog Martin’s ‘Full PPI reclaim tax back blog’ or to include a covering letter to HMRC explaining that they’ve tried to fill in the form as best as they can.
How much tax could people receive back?
“It varies hugely depending on the size of your PPI pay out and when you took out the loan. But as a very rough example, if you received £1,000 PPI pay out, and took out the PPI five years ago, you could receive £60 tax back, or £100 back if you took it out 10 years ago,” Martin explained.
“If you received a larger £15,000 PPI pay out and took out the loan five years ago you could get £900 tax back, or £1,470 for PPI taken out 10 years ago.”
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