Are you eligible for a Tax Rebate?
If you had a PPI Payout after April 2016 you could be due money back.
A quick guide to PPI
Payment Protection Insurance policies were supposed to be a way of making sure you didn’t get in trouble paying off things like loans, credit cards and mortgages. If you got sick or lost your job, for instance, the policy would keep up your payments until you were back on your feet. They actually weren’t a bad idea – in theory, at least. The trouble was, PPI schemes turned out to be a pretty big money-spinner, so companies were pushing their staff to sell to customers at every opportunity, whether they needed them or not. Quite a few people never even realised they’d signed up for PPI, because it was buried too deeply in the small print of their agreements.
Eventually, the authorities caught on to what was happening and dragged the PPI sellers back into line. Single-premium PPI policies were banned outright in 2009, and lenders were forced to start taking complaints seriously. This meant a lot of people getting payouts for wrongly sold PPI agreements.
What got taxed?
Since this is all money you shouldn’t have paid in the first place, your refunded PPI payments themselves aren’t taxed. However, you’re not just getting those payments back. You’re also getting some interest on them, to try and put you back where you should’ve been financially by now if you hadn’t been wrongly charged for PPI. So, on top of your actual payments, you’re getting:
- Interest on any additional loans that might have been dumped on top of your existing ones to fund your PPI payments.
- Another 8% per year in statutory interest.
It’s that last part that’s eligible to be taxed. It’s treated the same as any savings interest you might be getting.
Getting your money back!
Since 2016, most people have been able to earn up to £1,000 a year in interest tax-free (the Personal Savings Allowance). That includes the 8% interest on your PPI payout. People earning over £50,000 have a lower cap of £500 tax-free, while anyone making over £150,000 gets nothing. The thing is, most of those PPI payouts have still been getting taxed at the Basic Rate of 20%, even if they shouldn’t have been. That means you could still be owed money even if you were making enough to pay tax.
The tax you pay is worked out based on the year you got your payout, so if you were earning less than your tax-free Personal Allowance then, you shouldn’t have been taxed on your payout at all. If you got your payout after April the 6th 2016, you should also have got the benefit of your Personal Savings Allowance.