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IoM Clarifies Taxation Of PPI Compensation

by Amanda Banks, Tax-News.com, London

03 September 2012


The Isle of Man's Income Tax Division has released Practice Note 179/12, clarifying the taxation of interest included in Payment Protection Insurance (PPI) compensation.

Typically, PPI compensation payments are made up of two elements:

  • The repayment of premiums; and,
  • Interest which would have been earned if the premiums had not been paid.

The Income Tax Division has clarified that, generally, no tax will be due on the repayment of premiums element of PPI compensation. However, the interest element of PPI compensation is taxable and should be declared on tax returns for the year in which the compensation is received.

In some instances, UK tax may have been deducted already, generally dependent on the type of company making the payment. The government has clarified that if the interest element of the PPI compensation has suffered UK tax it may be possible to claim an allowance for some or all of this tax in the Isle of Man, depending on the total amount of a person's UK income. If a Manx resident’s UK income is less than the UK personal tax allowance they must claim back the UK tax from HM Revenue & Customs, as they will not be eligible for double taxation relief in the Isle of Man.

TAGS: individuals | Isle of Man | tax | interest | offshore

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