Financial whizz Martin Lewis has revealed how people with PPI payouts can reclaim tax.
Speaking on his ITV show The Martin Lewis Money Show Live, he said that tax is automatically deducted from PPI payments even though most people don’t need to pay it.
He advised anyone who had a payout within the last four years that they could be entitled to claim £100s back.
On his website, Money Saving Expert, Martin explains that the money people get paid back for PPI can have up to three main elements – a refund of PPI paid, interest returned on any extra loans the bank may have added and statutory interest for each year since you got the PPI.
The final element is the one liable to be taxed, as detailed on the payout statement you received.
He explains: “If tax is due on PPI payouts, most firms always have, and still do, deduct it automatically, at the basic 20% rate before you get the money. This has always been an obvious issue for non-taxpayers.
“However, since 6 April 2016, far more people have been owed tax back as that’s when the personal savings allowance launched. It allows most taxpayers to earn up to £1,000 a year of savings interest tax-free.
“Since then, while most savings interest has been paid ‘gross’, ie, without any tax being taken off, PPI still has 20% automatically deducted.
“And as PPI is taxed as a lump sum payment at the point it is paid, most people who have paid tax on PPI payouts since then are entitled to some money back.”
According to Martin, tax is deducted at the basic 20% rate, so for every £100 of statutory interest you earn, you pay £20 in tax.
If you watched the video above and want to know more, read this helpful tip page on Money Saving Expert.
- The Martin Lewis Money Show is on ITV at 8.30pm on Thursdays