Payment Protection Insurance (PPI) Tax
If you received a payout for a mis-sold Payment Protection Insurance (PPI) policy, part of that payout may be taxable. This guide explains what you need to know.A PPI payout is typically made up of two parts:
- A refund of the PPI premiums you paid — not taxable.
- Statutory interest (usually at 8%) on those premiums — taxable.
How is the interest taxed?
The interest is taxed as savings income. The bank or provider who paid you the compensation will usually have deducted basic rate (20%) tax from the interest before they paid it to you.
Do I need to do anything?
- Non-taxpayer or basic rate taxpayer: The tax deducted at source may be all you need to pay. If your total interest income is within your Personal Savings Allowance, you may be due a tax refund. You can claim this from HMRC using a form R40.
- Higher or additional rate taxpayer: You will owe more tax on the interest. You must declare the gross interest amount on a Self Assessment tax return so the extra tax can be calculated.