WIREDGOV

A recent change in tax law has clarified that, where a compensation payment from FSCS includes an element representing interest and that compensation is paid after 6 October 2008, the interest element of the compensation is treated as taxable income.

People completing tax return forms, either because they are able to reclaim tax that has been deducted from interest or because they are liable to pay further tax on interest received, will need the following three figures relating to their compensation claim when completing their tax return:

• The gross interest element;
• The amount treated as if it were tax already deducted from the interest; and
• The net amount paid that relates to interest.

The FSCS plans to provide the above figures to customers of the building society or banks that have recently failed before the end of September 2009. Icesave customers who pay tax on the interest they earn on their account will shortly receive a letter containing the above information.

As ISAs are tax free, consumers who have received compensation for an ISA will not be affected.

If you have any questions about your tax status please contact HMRC. More information on who will be affected by the clarification can be found here. If you require any further information connected to the tax on your compensation claim please contact FSCS.