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In short
- A PPI payout included statutory interest at 8%, and 20% tax was taken off that interest automatically.
- If your interest that year fitted within your Personal Savings Allowance, the tax was not due.
- Only the interest part is refundable, not the premiums.
- Claim within 4 years of the end of the tax year the payout landed in. Payouts from before April 2022 are now out of time.
Why tax was taken
The compensation had two parts: a refund of premiums, not taxable, and interest to compensate for the time you were without the money, taxable as savings income. Lenders deducted basic rate tax from the interest at source.
Why most of it is refundable
Since 2016 basic rate taxpayers can receive £1,000 of savings interest tax free, higher rate £500. Unless you had other large interest that year, the PPI interest sat inside the allowance and the 20% should not have been taken.
How to claim
Claim on gov.uk online or with form R40, one claim per tax year, with the lender's letter showing the gross interest, tax deducted and net interest. Non-taxpayers can reclaim the whole amount.
Worked example
Payout £3,200 of which £1,100 statutory interest, £220 tax deducted. Basic rate taxpayer with no other interest: full £220 refundable.
Deadline
Payout received in 2022 to 2023: claim by 5 April 2027. The deadline for PPI complaints was 29 August 2019, so most payouts fall in years that can no longer be claimed.
Questions
I do not have the letter.
Ask the lender for a copy of the final response letter; it states the interest and tax.
Does Taxpro do PPI claims?
Our service is employment expenses. The R40 is a short form you can file yourself.
This guide is general information, not advice about your circumstances. Figures use HMRC rates for the 2026 to 2027 tax year. We are a paid tax agent and not HMRC.
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