I understand that the Central Bank has clearly set out its expectations of lenders to provide appropriate redress and compensation to affected customers in its documented Principles for Redress published in December 2015.
The principles provide, inter alia, that “Any tax liability that impacted customers may incur as a result of the relevant issue in or respect of any redress, compensation or other payment made to impacted customers…are to be discharged by the lender. The lender is to liaise directly with Revenue in this regard”.
The Principles of Redress provide for a number of different classes of redress payments depending on the harm suffered by individual borrowers. The question of whether a tax liability arises in any given case depends on the specific issues to be redressed and the facts and circumstances of that particular case.
I am advised by Revenue that a number of lending agencies are liaising with them in order to identity any tax liabilities owing and to discharge same.
The tax liability will depend on the type of loan (for example, for a home loan or a “buy to let” property) and the redress and compensation payment to the borrower. In order to estimate the tax due in any particular case detailed information is required relating to
- the type of mortgage
- the amount of interest refunded (redress)
- the compensation payment to the customer made to reflect the detriment suffered by the borrower.
There is insufficient information in the details supplied to provide a definitive view of the taxation consequences of a settlement in the circumstances outlined.