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Compensatory interest on bank error (non-PPI) tax?

Entered in the Interest income section or Other Income?

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Apologies for the long background to follow before the question, but I'm giving it in case it effects how the position may be viewed.

A client of mine used to have a flexible mortage with Natwest One. In 2014 they wrote and said he was behind with his plan (even though the initial terms stated you could pay how you wanted as long as cleared within the term) and when he called them they wanted him to pay a ridiculous amount extra each month which he couldn't afford. So rather then face reposession down the line, he sold his house and has rented since.

Out of the blue, this week he received a letter from Natwest saying that after an internal review they have found that communications with some customers in 2014 caused them to take actions, such as selling their house, which wasn't their intention, and apologised.

In similar cases they offered the costs incurred in selling and have offered my client £3970 which they say is the average cost of selling. Then on top they have added Compensatory Interest which has had Basic Rate tax deducted. The letter says if you aren't a taxpayer you can recover this, or if a 40% payer you need to pay another 20%.

As this is Interest, can it not be included in the UK Interest section of a tax return and, provided under the Personal Savings Allowance, reclaim it? Or should it be entered under the Other Income section and, as the client is a Basic Rate payer, no effect?

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By Wilson Philips
06th Oct 2019 10:21

Interest is interest

As an aside, if the bank has admitted liability in causing customers to sell their property unnecessarily then I would be considering a claim for (a) the lost increase in property value that I would otherwise have obtained by holding onto it and/or (b) the difference between rental and mortgage payments.

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By penelope pitstop
06th Oct 2019 14:33

Yes, it is treated as taxed bank interest and should be entered on the tax return as such.

If under £1,000 or £500(higher rate) it will be taxed at 0% and so a tax credit will arise in the tax calculation,

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