The Foskett Panel

Tax - Tax due on Fixed Sum Awards

Taxation of Customer Awards
Process for obtaining funds to meet certain tax due on a Panel Award
Explanation of tax covered and not covered by LBG on Panel Awards
Funding for tax adviser fees relating to Panel Awards in the Re-Review
Tax due on Fixed Sum Awards
Additional considerations in respect of tax on Panel Awards for Customers who have been made bankrupt

Please note that the information on this page has been updated following the Autumn Budget 2024

  1. The Fixed Sum Award is an option available to a Customer who has received a Victim Status Decision from the Panel. It is a fixed sum accepted in lieu of the Customer remaining in the Re-Review and having their D & C losses (if any) assessed. If the Customer opts to accept this award they exit the Re-Review.
  2. HMRC has decided that the entire Fixed Sum Award should be treated as a capital sum for UK tax purposes and hence a straight 20% tax will be due on the whole amount received if received before 30 October 2024 or a straight 24% tax if received on or after 30 October 2024. The remaining sections of this guidance assume that the payment is received on or after 30 October 2024. There will be no Compensatory Interest Rate part.
  3. The Fixed Sum Award is £3 million net to the Customer (or their estate if applicable) i.e. the £3 million is the amount the Customer is left with after taking into account the 24% tax payable on the receipt (unless they have been made bankrupt - see paragraph 9 below; different considerations may also apply if the Customer is deceased – see paragraph [12] below). Hence the Fixed Sum Award will be grossed up (i.e. increased) to £3,947,368.42. This is so that, after paying tax of 24% on £3,947,368.42 (which is £947,368.42), the Customer is left with £3,000,000.
  4. LBG will make favourable assumptions about the Customer’s other income and allowances and hence it is possible that in some cases the amount of tax actually payable to HMRC is slightly less than £947,368.42. In those circumstances the Customer will not be required to refund money to LBG.
  5. For a (UK resident, non-bankrupt and non-deceased) Customer who has received a Fixed Sum Award of £3,000,000, LBG will pay that Customer the additional amount due of £947,368.42.
  6. In most cases LBG will pay the amount gross of the tax payable. That is, LBG will pay the Customer £3,947,368.42 (assuming the Customer is UK resident, and has not been made bankrupt and is not deceased). In either case the Customer must pay the £947,368.42 tax (being 24% of £3,947,368.42) to HMRC when it falls due.
  7. Any tax due on Fixed Sum Awards will usually be payable by 31 January following the end of the relevant tax year in which it was received in line with the self-assessment regime.
  8. As the Customer receiving the Fixed Sum Award will have left the Re-Review, no decision or involvement of the Panel is needed.

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Customers who have been bankrupt

  1. As explained in our separate guidance for Customers who are or have been bankrupt here, unless the bankruptcy has been annulled, the Fixed Sum Award vests in the Trustee in Bankruptcy (or the Official Receiver) and must be paid to them to distribute rather than being paid directly to the Customer.
  2. The Panel understand that the Customer is nevertheless treated as having received the Fixed Sum Award for Capital Gains Tax purposes. This means that whilst the Fixed Sum Award is paid to the Trustee in Bankruptcy (or the Official Receiver) a Capital Gains Tax liability is still expected to arise and, as such, the Fixed Sum Award will be grossed up (i.e. increased) to £3,947,368.42 to cover the 24% of Capital Gains Tax assumed to be due in the same manner as a Fixed Sum Award paid to a Customer who has not been bankrupt.
  3. The Panel understand that in cases where the right to receive the Fixed Sum Award belongs to the Trustee in Bankruptcy (or Official Receiver), although the Customer may be obliged to file a self-assessment tax return to report the Fixed Sum Amount, the Trustee in Bankruptcy (or Official Receiver) will pay the tax due directly to HMRC (though the Customer should ensure that this does indeed happen, in order to avoid the risk of penalties and/or interest for non-payment of tax).

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Non-UK residents

  1. The position described above (including for Customers who have been bankrupt) relates to Customers who are UK residents for tax purposes. It should be noted that the position as regards the tax on the Fixed Sum Award may be different for non-UK residents and Customers should notify LBG if they are or have been resident or domiciled outside of the UK for tax purposes so that the correct tax can be assessed.
    Deceased Customers: The application of UK Capital Gains Tax to Fixed Sum Awards paid to the estate of a Customer who is deceased can differ depending on the precise circumstances. The Panel understand LBG will communicate with the personal representatives of deceased Customers in such cases.

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Queries or professional advice

  1. The Panel understand that the position in relation to professional fees for tax advice in connection with Fixed Sum Awards will be explained in communications from LBG regarding acceptance of such awards. LBG will not fund the cost of such advice in most cases, given the straightforward guidance from HMRC, but may agree to do so (in certain circumstances) where the Customer is not resident within the UK for tax purposes. Any queries should be sent to rereviewenquiries@lloydsbanking.com.

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