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bigduckontax
bigduckontax, Accountant
Category: Tax
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Experience:  FCCA FCMA CGMA ACIS
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I have been awarded 50K by FSCS as compensation mis

Customer Question

Hi, I have been awarded 50K by FSCS as compensation for a mis sold sipp investment. Their calculation was that I had lost 54K but the limit is 50K. It has cost me a further 9K in fees to get the award, therefore I have gained net 41K but I have lost 14K. The payment is being sent to me direct. Is this payment subject to income tax?
Hope you can help
Thanks
SP
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello SP, I am Keith, one of the experts on Just Answer, and happy to help you with your question.
Have a look here for a very comprehensive analysis of the Income Tax possible liabilities from mis-sold pensions:
http://www.telegraph.co.uk/finance/personalfinance/money-saving-tips/2894350/The-taxman-wants-his-slice-of-your-mis-selling-compensation.html
I would particularly draw your attention to the following pertinent summary analysis from The Telegraph:
'Where the compensation consists of a sum for "damages" because the policyholder has given up the right to take legal action against the life company for mis-selling, this payment will be tax free.
But in some instances the life company may have asked policyholders to surrender the policy and paid them a sum which represents a return of the premiums paid, plus interest to compensate for the loss of the use of their money. It is this interest, though not the return of premiums, that is taxable.
But even those homebuyers who have agreed a figure for "damages" from their insurer could be liable for tax if the payment has not been made immediately. If there has been a delay and the insurer has made an additional cash payment then this too will be subject to income tax.'
In basic terms it is the interest element, not the compensation nor the return of premiums which attracts Income Tax.
I do hope that I have been able to shed some light on your position.
Customer: replied 1 year ago.
I'm still not clear. The sipp was invested, on the advice of an IFA, in a commercial development. The development never happened and the FSCS adjudged that the IFA parent, which has gone bust, was to blame fro advising me badly. Does this type of redress fall into tax free since it is actually a shortfall and contains no element of interest or profit?
Expert:  bigduckontax replied 1 year ago.
It is only interest element, if any, of a compensation payment or return of premiums which is taxable. In your case there isn't any so the whole kit and caboodle is tax free.
Customer: replied 1 year ago.
Thanks, ***** ***** I hoped to hear,
RegardsSp
Expert:  bigduckontax replied 1 year ago.
Delighted to have been of assistance. Please be so kind as to rate me before you leave the Just Answer site.
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Expert:  bigduckontax replied 1 year ago.
Thank you for your support.