Financial Claim Pay-Outs, Interest and Owed Tax

Most firms would have automatically deducted tax at the basic 20% rate on claim pay-outs even though not everyone would have had to pay. Non-taxpayers are entitled to claim back all of the tax they paid from HMRC.

At the start of the tax year in 2016, the personal savings allowance was introduced. This allows taxpayers to earn £1,000 a year tax-free interest on their savings – including statutory interest on financial claims. As most claims are taxed at the point they are paid in a lump sum, most of those who have paid tax on financial claim pay-outs since, are entitled to money back.

The reason you are taxed is because the statutory interest is paid to try and return you to the position you would have been in if you hadn’t been mis-sold the product initially.