Do I Have To Pay Tax On My Mis-Sold Pension Compensation?

Discovering your pension was mis-sold can be a real headache. But when you finally get compensation, you might wonder, “Do I have to pay taxes on this?” Don’t worry, we’re here to help you make sense of it all.

In this blog, we’ll break down the tax aspects of mis-sold pension compensation, so you can understand how it may affect your hard-earned money. By the end, you’ll have a clearer idea of what to expect and how to make the most of your compensation without any tax surprises.

Types of Mis-Sold Pension Compensation Subject to Tax

In the intricate world of pensions, not all mis-sold pension compensations are taxed the same.

• Investment Loss Compensation: If you’ve suffered financial losses due to mis-sold investments within your pension, the good news is that any compensation you receive for these losses is typically not subject to income tax. This is because you’re essentially being reimbursed for the money you’ve lost.
• Mis-Sold Annuity Payments: Mis-sold annuity compensation falls into a slightly different category. An annuity is a regular payment made in exchange for your pension savings. If you were mis-sold an annuity, any compensation you receive may be subject to tax, as it’s considered income. However, the exact tax treatment depends on several factors.

If your case falls under the Finance Act 1996 (section 148), you’re in luck. This applies to those who were part of occupational pension schemes and covers both Income Tax and Capital Gains Tax.

To qualify for this tax exemption, you need to meet a couple of conditions:

• You chose a personal pension plan or a retirement annuity contract over an occupational pension scheme. This could be because you opted out, transferred out, or never joined in the first place.
• You received bad advice that led to this decision. This could be negligent advice that didn’t consider your personal situation, or breached a contract or your trust.
• You received this advice between 29 April 1988 and 30 June 1994.

HMRC plays a big role in determining how your mis-sold pension compensation is taxed. They will take into account the type of compensation you get, as well as your own financial position – if you’re in a higher tax bracket, you may pay more tax on your compensation.

That being said, in most cases, you probably won’t have to worry about taxes on your pension compensations. It’s always smart to double check with HMRC, just to be absolutely sure.

Along with the Financial Ombudsman, HMRC are there to help make sure you’re in the same financial position you would have been in if you weren’t mis-sold to.

Start Your Mis-Sold Pension Claim Today

Whether you’re ready to make a claim, have questions about tax or are just looking for some mis-sold pension advice, our experts at Spencer Churchill Claims Advice are here to help.

With years of experience in the field, you can count on our team of professionals for honest, reliable and transparent advice.

We know how hard you worked for your pension pot and we will do everything we can to help you win back your money, so you can enjoy your golden years to their fullest.

Get in touch today for a free, no-obligation chat.