SAIM2340 - Interest: exemptions: compensation for mis-sold pensions

Interest included in compensation for mis-sold personal pensions

FA96/S148 exempts compensation received for mis-sold personal pensions from both income tax and capital gains tax, provided certain statutory conditions are met. The recipient of the compensation must

• have opted or transferred out of, or failed to join, an occupational pension scheme, in favour of becoming a member of a personal pension plan or taking out a retirement annuity contract,
• as a result of receiving ‘bad investment advice’, and
• at least part of this advice must have given in the period 29 April 1988 to 30 June 1994 (the period covered by the review ordered by the Securities and Investment Board in 1994).

‘Bad investment advice’ is statutorily defined in FA93/S148 (6) – see CG13083. Guidance on the tax treatment of compensation for mis-sold pensions generally is at CG13080 onwards.

There is also an exemption (FA96/S148 (5)) for interest included in such compensation payments. But this exemption only covers interest up to the date on which the capital sum payable is agreed, or determined by a court, tribunal or arbitrator. If there is delay between agreement of the amount and actual payment, interest for that period is taxable in the normal way.

An extra-statutory concession (ESCA99) announced in a press release of 28 February 2000 (PR23/00) extended the FA96/S148 exemptions, including the exemption for interest, to compensation received for Free Standing Additional Voluntary Contributions (FSAVC) that were mis-sold in the period 28 April 1998 to 15 August 1999. Again, only interest up to the date on which the compensation payable was agreed is exempted

The exemption is specific to compensation for mis-selling of pensions – it does not extend to mis-selling of financial products generally (see SAIM2080).