Warning about a PPI Claim and your Trust Deed

A comparatively small number of trust deed firms require their clients to work with PPI claims companies during their protected trust deed. An investigation is made into whether the client has been missold PPI. Where evidence of misselling is found, a claim is submitted. Where such PPI claims lead to a payout the money is then paid into the trust deed.

While only a minority of Scottish trust deed firms require this, there are some fair arguments that can be made in favour of the practice. In theory at least it will mean that banks and credit card companies that missold PPI will be held financially responsible, and that those creditors which did not behave in this way will receive higher dividends from the trust deed.

However, our trust deed forum has unearthed a number of poor practices amongst some trust deed firms. These poor practices could potentially outweigh the benefits of PPI claims during a trust deed.

Unfounded Assumptions & Poor Investigation
The first dubious practice occurs when companies aggressively assume that any PPI purchased must have been missold. One visitor recently reported that the pack they were sent by the claims company (instructed by their trust deed firm) included a page to be signed stating emphatically that they were missold PPI and were submitting a complaint. This was before any investigation had even been made! Many visitors have reported that they have had the requirement to claim sprung on them very late in their trust deed leading to an inevitable delay in their discharge.

Taxable Interest
A new problem has now been identified. PPI claims within a trust deed often result in two elements of a payout; one for the amount paid for PPI and another for the interest (at 8%) that has accrued on this debt. HMRC have now determined that the interest element is taxable.

The interest on a PPI claim can be very substantial. 8% is accrued each year; if the misselling took place some years ago the interest element of a payout will be large. That potentially leads to a large tax liability for the individual beneficiary of a claim.

The BBC website reports that some lenders deduct tax at source on a PPI claim but that others do not. For example, HSBC, Barclays, Lloyds and Co-op bank are not deducting tax at source currently. So what’s the problem?

If your trust deed firm has instructed you to make a PPI claim the money paid out will go via them into your protected trust deed. If tax on a payout has been deducted at source there should be no issue for most people, but if it has not then you may have a tax liability created.

It’s then your responsibility to notify HMRC, and subsequently face an extra tax bill. If you do not notify HMRC and the payout is later discovered by them (from bank records or bank reporting for example) your problems may be magnified. You will not have received the payout which went into your trust deed, so you’ll have an extra tax bill and nothing extra to pay it with.

How to Deal with PPI Interest Taxation
Anyone who is required to submit PPI claims as part of their Scottish trust deed therefore needs to make enquiries to ensure their tax status isn’t unfairly affected. Firstly you’ll want to enquire of your PPI claim provider whether tax was deducted at source by the bank making the payout. Secondly, if it wasn’t, you’ll want to request that your trust deed provider hands over to you a portion of the PPI payout sufficient to cover your extra tax liability that their requirement to claim has created.

Anyone considering starting a trust deed will wish to consider whether they wish to expose themselves to this at all, or whether it would be better to find a trust deed firm that does not incorporate PPI claims requirements into their processes.

To find out more about PPI claims and your trust deed, and to discover which Scottish trust deed firms require you to make a PPI claim, visit Trust-Deed.co.uk where you’ll find all the information you need. Trust-deed.co.uk includes forums full of other trust deed users and trust deed experts who will be able to advise you. If you’d like to speak to one of Trust-Deed.co.uk’s professionally qualified trust deed advisers just call 0800 043 7201 today.

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