Financial Services Compensation Scheme- taxation of receipts
The measure
The Financial Services Compensation Scheme (FSCS) makes compensation payments to savers in financial institutions which fail. The payment in part represents accrued interest and a notional tax amount. Legislation is introduced to charge the accrued interest to income tax with credit for the notional tax credit. The FSCS will be required to analyse the payment so that investors can prepare their tax returns correctly.
Who will be affected?
Individuals who receive payments from the FSCS in compensation for a financial institution, such as a bank, which fails to make payments to them, where part of that payment represents accrued interest.
When?
The new legislation will apply to payments made from 6 October 2008.
This brings consistency to the tax treatment of the payment and actual interest received. The requirement for the FSCS to give the individual a statement showing the amount of interest and notional tax is important to ensure that they can prepare their tax returns accurately. The measure should ensure that an individual is not unduly penalised or advantaged when receiving compensation from the FSCS.
