Tax treatment of compensation on interest rate hedging products
HMRC has amended its guidance on redress payments from banks for Interest Rate Hedging Products.
The guidance assists businesses in establishing the tax position on these payments. The payment is generally taxable because tax relief would have been claimed on the payments. The interest element should be taxed as interest rather than as trading income.
The guidance also highlights that under certain circumstances, such as when a business has stopped trading or when the product was for a non-business loan, the tax treatment of the payment will be different and advice should be sought.
Date: 3rd December, 2014
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