The Inland Revenue is currently assessing whether or not tax should be levied on compensation payments made to people that were mis sold financial products. When the Financial Ombudsman Service and other similar compensation schemes make awards, they generally put you back in the position you would have been, had you not been given the wrong advice.
Sometimes an amount is given to compensate for the time the investor was unable to use the money and it is this that the Inland Revenue is swooping on, as they believe it is interest and should be taxed.
The August bulletin from the Inland Revenue clarified that even though money can be paid out to a victim and termed "damages", it is still interest and therefore taxable.
Our View
Well, it didn't take long for the Inland Revenue to cash in on the compensation culture that is sweeping the UK at the moment, did it!
We believe that if the money had been held on deposit and not wrongly invested, it would have accrued interest and therefore tax should be payable. But, damages are not interest, in our opinion!