Income Tax (Trading and Other Income) Act 2005 section 380A

FSCS payments representing interest

Section 380A ensures that payments made under the Financial Services Compensation Scheme (FSCS) that represent interest are treated as interest for income tax purposes.

• Any FSCS payment that represents interest is treated as actual interest and is therefore chargeable to income tax in the hands of the recipient.
• A "payment representing interest" is one calculated in the same way as the interest the recipient would have received had the circumstances leading to the FSCS claim not arisen.
• Where the FSCS pays the interest element net of a deduction equivalent to income tax, the full gross amount (the net payment plus the tax-equivalent deduction) is treated as interest for tax purposes.
• The treatment applies to all FSCS payments representing interest, regardless of whether those payments are made wholly or partly on behalf of the Treasury or any other person.