Santander car finance compensation and tax

If you had car finance through Santander Consumer Finance between April 2007 and November 2024, you may be owed compensation under the Financial Conduct Authority’s (FCA) motor finance scheme. If Santander pays you, it will usually take income tax off the interest part (22% from 6 April 2027) of the payment before it reaches you. Many people can get some or all of that tax back from HMRC.

Update, 3 October 2026: Since this article was first published, Santander UK has increased its motor finance provision to £640 million (City AM). On 2 July 2026 the Upper Tribunal suspended parts of the FCA’s scheme while four legal challenges are heard. Santander is not one of the challengers. For now, lenders don’t have to calculate or pay compensation under the scheme. The FCA says that if the scheme is upheld, it expects payments to begin in 2027 (FCA).

Santander’s place in car finance

Santander Consumer Finance is the motor finance business of Santander UK. It funded PCP and hire purchase (HP) agreements arranged by car dealers, who acted as credit brokers and were often paid commission by the lender.

Some of those deals used a discretionary commission arrangement, where the dealer could set your interest rate within a range and earn more commission the higher it went. The FCA banned these arrangements from 28 January 2021 (FCA). The scheme also looks at high commission and undisclosed contractual ties, so it isn’t limited to discretionary deals.

What Santander has set aside

Banks set aside money, called a provision, to cover what they expect a problem to cost. In February 2026 Santander UK raised its motor finance provision to £461 million, after adding £183 million (Reuters via MarketScreener). After the FCA confirmed its final rules, it added a further £179 million in April 2026, taking the total to £640 million (City AM).

A provision is the bank’s own estimate. It doesn’t tell you what any one customer will receive.

How the FCA scheme works

The FCA confirmed its scheme on 30 March 2026 (FCA). The key points:

• It covers agreements taken out between 6 April 2007 and 1 November 2024 where the lender paid the broker commission.
• The FCA estimates 12.1 million agreements are eligible, with average compensation of around £830 per agreement.
• Simple interest is added to compensation at the annual average Bank of England base rate plus 1%, with a minimum of 3% a year.
• The final deadline to complain is 31 August 2027.
• You can’t use the scheme if you’ve already accepted compensation, or if the Financial Ombudsman Service or a court has decided your complaint (FCA).

Complaining to Santander is free. The FCA says you don’t need a claims firm or a law firm to take part. If you’re not sure who funded your car, our guide on how to find your car finance lender can help, and you can claim for more than one agreement if you had several.

What to look for in a Santander payout letter

When a lender pays compensation that includes interest, its letter or statement should help you split the payment into parts. Look for:

• the compensation amount itself (the refund of what you overpaid or the commission element)
• the gross interest added
• the income tax deducted from that interest
• the net amount paid to you
• the date of payment, which decides the tax year

Keep this letter. HMRC asks for a document showing gross interest, tax deducted and net interest on a claim for the tax (GOV.UK).

Reclaiming the tax on the interest

The compensation itself isn’t taxed as income. The interest is treated as savings income, and the lender deducts basic-rate tax (22% from 6 April 2027) before paying. Our overview of whether car finance compensation is taxable explains the rules. Whether you’re owed some back depends on your other income and your allowances (GOV.UK):

• the Personal Savings Allowance is £1,000 for basic-rate taxpayers, £500 for higher-rate taxpayers and £0 for additional-rate taxpayers
• the starting rate for savings can make up to £5,000 of interest tax-free if your other income is low

As general rules, a non-taxpayer can usually reclaim all the tax deducted, a basic-rate taxpayer can usually reclaim up to £200, and a higher-rate taxpayer may reclaim some or none depending on the amount. Your own circumstances, including other savings interest in the same year, will affect the result.

The repayment is usually claimed on form R40, up to four years after the end of the tax year you were paid. If you’re registered for Self Assessment, it goes through your tax return instead. When you use our service, we check whether you’re likely to be owed anything, work out the right tax year, prepare and submit the R40 as your agent, and pay you the balance after our fees. Our how it works page explains the process.

Your next step

Use our calculator to see roughly how much tax you could get back on a Santander payout. You can also read more on our Santander Consumer Finance page.