Liberal Democrat Party Treasury spokesman Vincent Cable has written to the Inland Revenue to ask why victims of endowment misselling will be forced to pay tax on their compensation.
The Revenue has made it clear in its latest bulletin that thousands of people getting compensation for misselling claims will have to pay tax on their payout.
But Cable believes the Government should have foreseen any tax costs to misselling victims. He says the Treasury could have looked at introducing legislation that would have protected compensation from tax along similar lines to the clause included in the Finance Act which covers pension misselling.
He has written to Inland Revenue chairman Sir Nich-olas Montagu to ask him to explain the basis for what Cable describes as a highly inequitable and arbitrary decision from the Revenue.
The Association of Chartered Certified Accountants believes the Revenue is taking advantage of people who have already suffered.
Those who could face the highest tax bills include endowment and with-profits bond misselling victims. Their compensation payment will often include a sum to cover the loss of interest they would have received if their money had been placed in a deposit account.
Cable says: “I believe that compensation for pension misselling claims is not taxed,nor are compensation claims for injuries. Surely, the test should be that taxation should be no higher or less than if financial products had matured in the normal way.”
ACCA head of taxation Chas Roy-Chowdhury says: “Trying to capture tax on this money after the event is unacceptable. Many people have suffered severe financial hardship and risked losing their homes as a result of financial misselling.
“It is also highly probable that many of those have already allocated most of the compensation received to repay the huge deficits in their mortgages.”