Practical points: personal tax April 2026

Savings and interest

Decision on compensation and interest upheld

The Upper Tribunal (UT) has found that the First-tier Tribunal (FTT) was correct to regard compensation paid for mis-sold interest rate hedging products as taxable.

Two brothers purchased interest rate hedging products (IRHPs) from a bank, to protect themselves against potential interest rate fluctuations on loans that they had taken out. These were deducted against their property business profits. Ultimately, it turned out that they had been mis-sold these IRHPs. They were given redress payments consisting of a basic sum - the difference between the cost of the product and the cost of a more appropriate product, plus interest.

The brothers included the basic redress in their returns. They failed to declare the interest. HMRC raised closure notices on the basis that the interest was taxable. The brothers argued that the payments were made for the “opportunity cost in losing the ability to invest in different hedging products” rather than as compensation, they were not taxable.

The FTT dismissed the appeals and found that income tax applied to the whole of the payments and interest.

The taxpayers appealed to the UT, arguing that the FTT had erred in law as its decision was not logically valid, as the conclusions drawn did not follow from the findings made. The UT considered the judgement as a whole, but did not agree with the taxpayers. The financial loss arose from this arrangement, the compensation did not relate to a theoretical opportunity cost for profits made if they entered into an alternative arrangement. As there was no error of law the appeal was dismissed.

The taxpayers had also complained about HMRC’s conduct. The UT found that HMRC had acted in an entirely professional manner, and the language used by the taxpayers was indecorous.

• Hackett & Anor v HMRC [2026] UKUT 36 (TCC)

From Tax Update February 2026, published by S&W Partners LLP