Compensation: Mis-sold pensions: statutory exemption
FA96/S148 (2) specifically excludes any compensation payments made in these cases from a charge to Capital Gains Tax. This applies where the mis-selling was as a result of:
- breach of contract
- breach of a fiduciary obligation
- contravention of Section 62 the Financial Services Act 1986.
Section 148(1) exempts these payments from a charge to Income Tax.
In some cases customers may have received bad investment advice on their pensions outside the period covered by the review. Section 148 does not apply to such cases. If, therefore, you are dealing with a case where someone who received bad advice has taken action directly against either their financial adviser or insurance broker, any compensation they receive may still be chargeable to Capital Gains Tax.
Where compensation has been received for a mis-sold pension which is not covered by the statutory exemption, then it may be chargeable as a capital sum derived from the recipient’s rights:
- as a member of a pension scheme, see CG13080
- under their contract with their insurance broker or financial adviser, see CG13000
- to take action for negligence on the part of their insurance broker or financial adviser, see CG13015.
If you are dealing with a case which is not covered by Section 148, then you will need to make sure that you obtain copies of all the relevant documents and correspondence. You should then refer to the relevant guidance elsewhere in this part of the manual.