Will tracker refund and compensation be taxable?

Sarenco

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Toledo

I asked you two very simple questions. You either can't or won't answer those questions.

You said that Revenue are not "hamstrung" by legislation. I assumed you meant that Revenue could therefore simply ignore legislation but perhaps not.

In any event, what specific legislative provisions do you believe Revenue are "interpreting" in these circumstances?

I will ignore the abusive remarks.
 

Sophrosyne

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As he will know, I don’t often agree with Sarenco.

In this instance however, I agree with him in that the PTSB redress letter does not clarify the situation for borrowers entitled to compensation.

Since so many people are affected, I am also surprised that Revenue has not published on its website details of how it will treat compensation payments and excess mortgage interest relief.

The redress letter states that PTSB have had discussions with Revenue and that they (PTSB) are addressing any tax issues.

What, precisely, does that mean?

What are the tax issues and how are PTSB addressing them?
 

Sarenco

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Since so many people are affected, I am also surprised that Revenue has not published on its website details of how it will treat compensation payments and excess mortgage interest relief.
Absolutely agree.

This has been a "live" issue now for over 18 months - Revenue should really clarify their proposed approach as a matter of some urgency.
 
J

Jon Stark

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Common sense would suggest the only practical way the thing can be addressed is by the financial institutions settling whatever aggregate tax liabilities are estimated to arise - the alternative, from Revenue's perspective (chasing thousands of people for relatively small amounts of money) doesn't seem at all appealing...
 

Sarenco

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Yes, I certainly agree that it would make sense from an administrative perspective for the financial institutions concerned to make any refunds of excessive interest payments net of any TRS overpayments and to remit same directly to Revenue.

Obviously that doesn't address the taxation of the compensation element of any redress payments (ie any redress payments over and above the refunding of excessive interest payments, net of TRS deductions).
 

Sarenco

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It's certainly possible that the relevant financial institutions will agree to "gross up" any compensation payments to address any TRS overpayments and will remit same directly to Revenue.

However, that could prove a pyrrhic victory for a borrower if the amount of the compensation payment (over and above the refunded interest) is itself taxable at the borrower's marginal tax rate.

For example, in the UK the compensation payments arising from the PPI scandal (over and above the refunded premiums) were taxable and the amounts involved were far from trivial. Perhaps the compensation payments in this case can be distinguished from the PPI compensation payments but it's not immediately obvious to me why this would be the case.

It's also worth noting that most statutory redress schemes (HepC, residential institutions, etc) specifically provide that redress payments under those schemes are not taxable. The statute establishing the scheme provides that any redress payments are treated in all respects as if it were a payment made following the institution, by or on behalf of the applicant to whom the payment is made, of a civil action for damages in respect of personal injury, which is not taxable. That is obviously not the case here.
 
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geri

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maybe this has been raised an answered alreday but what will happen to those people who would have used mortgage interest payments to off-set tax liability in rental income computations? and are now in line for refunds of interest overpayment
 
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Sophrosyne

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Looks like the financial institutions will take the tax liability hit, but some banks are dragging their heels on the issue, hence no formal instruction from revenue yet
Hi Toledo,

Even if they were willing to do so, as far as I am aware, there is nothing in the taxes acts which would permit a person (including a bank or any other entity) to be made liable for taxes correctly incurred by other persons or individuals (in this case, borrowers).

I think, therefore, that the only logical way that Revenue could deal with this would be to instruct lenders to reduce individual borrower compensation payments by tax due, if any, plus any excess mortgage interest relief.
 
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Sarenco

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maybe this has been raised an answered alreday but what will happen to those people who would have used mortgage interest payments to off-set tax liability in rental income computations? and are now in line for refunds of interest overpayment
That's a very good point. Would such borrowers have to submit amended tax returns? I'm afraid I've no idea.
 
J

Jon Stark

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That's a very good point. Would such borrowers have to submit amended tax returns? I'm afraid I've no idea.
Revenue, under the care and management provisions of the Taxes acts, have very broad powers to do what is "necessary and expedient" in the raising and collecting of taxes. If they reach an agreement with the financial institutions as to how they (the banks) will deal with the global tax liabilities arising, then surely that would be the best all round...
 

Sarenco

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If they reach an agreement with the financial institutions as to how they (the banks) will deal with the global tax liabilities arising, then surely that would be the best all round...
Well, even if that was agreed in principle, the financial institutions obviously have no visibility on the tax position of their individual customers (and in many cases they won't even know whether a particular mortgaged property is a PDH or a rental). In other words, practically how do you arrive at even a ball park estimate the "global" tax position?

Also, is there not an issue of fairness if one borrower gets a greater tax benefit than another in terms of the treatment of the redress payments?

Just to be clear, I am not expressing any opinion on what ought to happen - I just think there should be transparency regarding the Revenue's position.
 

Sarenco

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Assuming the financial institution referenced in the response is PTSB, that answer doesn't really provide any additional clarity - it's very much a holding response.

We still don't know how (what subsequently turn out to be) excessive reliefs or deductions already claimed by borrowers will be handled by Revenue and/or the financial institutions concerned.
 

blured

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Take the example of a borrower that was overcharged interest on a BTL mortgage and claimed the excess interest as a deduction on his income tax returns. How will that matter now be settled with Revenue?

Will there be some sort of an amnesty? If so, that means the value of the redress/compensation will be dependent on the tax position of the impacted borrower. Does that seem fair?
Has there been any discussion on this at all? I'm in this boat, have had my tracker restored, just waiting on redress. If they just apply the over charged interest to the mortgage balance and I have to revise my tax returns for over claimed interest, I'll have to come up with the cash to pay revenue
 

elacsaplau

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Does anyone know the tax treatment where a bank refunded over-charged interest to an individual who was not formally part of the redress scheme?
Alternatively, the name of any tax consultant who specialises in this area?
 

WizardDr

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1. What was treatment of previous interest paid as in was it fully / partially / none allowed for tax?

2. Revenue wont reopen previous years.

3. Say Fully allowable: If you get refund say €5k this year - and you have €7k allowable this year then this will be reduced by €5k

Depends on facts.
 

Shakespeare

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Hi
Slightly different bent on this compensation question but I cannot seem to get a proper feel for what's going on here:
Situation:
Customer made complaint about not being allowed lodge funds to a savings account, long story short, bank has agreed to pay the amount of interest that should have been earned on that money over an almost 2 year period. The bank are clear that they are going to pay the net amount that the customer would have received, ie net of the DIRT that would have been paid had the money been in the account earning interest. Fair enough. However, the Bank are adamant that this payment is being called compensation (not refund, not payment of interest etc) and I am concerned that their use of this terminology is deliberate:
1. It may leave me open to a tax claim inspite of it effectively being only a repayment of what should have been earned and net of the DIRT that would have been paid and
2. It seems that by calling it compensation rather than anything else, that though I get the net amount, there isn't actually anyone ie Revenue getting the DIRT that would have been paid on it earned correctly so this really suits the bank but still may leave me exposed by virtue of the terminology being used

I need to revert to the bank (indirectly) on this and I am concerned about accepting what they are proposing

Can anyone shed any light on this?
Thanks for reading
S
 
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