If you’ve recently received pension compensation, or you’re planning on submitting a claim for mis-sold pension compensation, you may need to pay tax on any payment you might receive. There is no general guidance for the taxation of compensation for mis-selling and the tax treatment of compensation payments is a complex area which has given rise to a substantial number of tax cases.
The criteria for paying tax on financial awards of this nature differs depending on certain circumstances. HMRC will review the type of compensation you have received to determine if it is taxable or not. They will also consider an individual’s financial situation.
In the vast majority of cases, pension compensation is not taxable. However, there are a number of scenarios that could mean that tax is payable.
It might seem unfair that any compensation could be subject to tax. After all, it is awarded due to the mistreatment of your pension funds in the first place. We would recommend speaking with a Tax specialist to ensure that any compensation receives the correct tax treatment.
Please contact us if you wish to find out more.