Client has received compensation from Lloyds Private Banking due to poor investment advice following the intervention of the Financial Ombudsman consisting of capital lost plus compound interest on original capital, capital loss from closure to date & interest calculated from closure to date. Are these payments taxable? Are ther any precedents?
patricia graham
Replies (2)
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Yes, but
if it's not an income receipt, as it will almost certainly not be if the recipient is not carrying non a trade/profession, then read ESC D33 to ascertain whether it is taxable at all. It may well not be taxable at all if it is basically compensation unrelated to a chargeable asset. You need to scrutinise the underlying documentation.
Compensation: Fixed or circulating capital?
Compensation receipts are taxable if they relate to 'circulating capital'.
Have a look at:
http://www.hmrc.gov.uk/manuals/bimmanual/BIM40115.htm
The compensation received in relation to the capital lost would not taxable - however the compensation payment relating to the interest would be taxable?