Guidance

TDSI bulletin 41

Updated 6 April 2016

This guidance was withdrawn on

This content is obsolete from 6 April 2016.

This content is obsolete from 6 April 2016.

1. R85 and helpsheet for tax year 2014 to 2015

The helpsheet for 2014 has been revised to include:

  • the allowances that were announced at pre-budget report
  • changes suggested following the report of the Office of Tax Simplification (OTS)

Following recommendations made by the OTS and the Low Incomes Tax Reform Group, the order has been changed so that investors now consider their income before moving on to their allowances. The updated R85 helpsheet (PDF 52KB) for 2014 to 2015 will be available on the HM Revenue and Customs (HMRC) website soon.

There are no changes to form R85 (PDF 725KB).

2. Forms R105, R105(PR), R105(DAT) and R105(AFA)

These forms have been updated to reflect the change from ‘ordinary residence’ to ‘residence’ which take effect for TDSI from 6 April 2014:

Forms R105(PR), R105(DAT) and R105(AFA) are available only via download due to very low usage but form R105 can be downloaded or ordered from the HMRC Orderline:

HMRC Orderline

PO Box 37
St Austell
PL25 5YN

Telephone 0300 200 3610

Fax 0300 200 3611

3. Residence rule changes from 6 April 2014

New rules on residence apply for TDSI purposes from 6 April 2014. From that date the concept of ‘not ordinarily resident’ ceases and instead a non-resident investor can complete a form R105 in order to receive gross interest (if the bank or building society offers the R105 facility). TDSI guidance notes (PDF 487KB) will be updated to show the changes. Until then please use the information provided here.

For TDSI purposes, the new Statutory Residence Test (SRT) takes effect from 6 April 2014. Investors can check their residence position by using HMRC guidance in the RDR3 (PDF 447KB)

Existing forms R105 (not ordinarily resident declarations) accepted before that date do not need to be replaced and can continue to be used to frank gross payment of interest unless/until the financial institution has information that the saver is resident in the UK.

Under the new residence rules, an individual is resident (or not) for the whole tax year. If they leave or return to the UK part way through a year they will have to use the guidance to determine their status for that year. The split year treatment mentioned in the guidance will have no relevance for TDSI purposes and the residence position of the investor must be determined in accordance with Chapters 1-3 of the SRT Guidance.

From 6 April 2014 there are no particular rules that apply to overseas students. Students will need to determine their residence status in accordance with the SRT Guidance. The same applies for individuals who have come to work or live in the UK for less than three years.

When financial institutions receive a non-resident (NR) declaration which is fully completed in the form currently prescribed (or approved) by HMRC, they must satisfy themselves that there are no grounds for believing that the investor is or may be resident in the UK or that the trustees are or may be resident in the UK, or that any of the beneficiaries are or may be resident. If they are so satisfied they must pay interest without deducting basic rate tax (BRT). A declaration given in-year will confirm that the investor is NR for the whole of that tax year so the financial institution can apply retrospection if they wish and refund any tax already deducted from interest paid earlier in that tax year. If the financial institution decides not to offer retrospection, the investor will have to make a claim to HMRC.

Financial institutions must put in place systems (clerical or computer-based) for ensuring that all relevant information is taken into account. In particular all accounts to which the investor or trustees/beneficiaries is/are party, whether deposit or loan accounts (including mortgage accounts), and any such other accounts should be reviewed. Examples of relevant information which could cast doubt on the validity of the declaration are:

  • a UK business in which the investor/trustees/beneficiaries appear to participate actively
  • a UK address or postal directions
  • an overseas PO Box or “c/o” address
  • a BFPO address
  • frequent or regular personal visits to the bank, cash transactions etc
  • a notification that the account is the subject of a third party mandate in favour of a UK resident or used as security for borrowing by UK residents or for borrowing in respect of the purchase of the UK property

It will be unusual for such information to provide conclusive proof that the NR declaration is invalid. However, where the information could reasonably be taken to indicate that the investor may be resident in the UK, the trustees may be resident or that any of the beneficiaries may be resident, the financial institution is obliged to satisfy itself that the evidence does not render the NR declaration invalid. One way of doing this would be by obtaining written confirmation from the investor. A note of any enquiries made should be kept in the investor’s records or the trust records.

Once an NR declaration has been received, financial institutions must pay interest without deducting BRT unless and until they receive information suggesting that the investor is or may be resident in the UK, or the trustees are or may be resident, or any of the beneficiaries are or may be resident. This is called the ‘continuing obligation’. They must put in place systems so that as far as possible all relevant information which can be readily linked to a NR account is brought to the attention of the financial institution. Relevant information is that which points to a UK connection, for example:

  • notification of a UK address
  • applications for credit cards, loans or mortgages suggesting UK residence
  • use of the deposit as security for borrowing by UK residents or for borrowing in respect of the purchase of UK property
  • the grant of third party mandates in favour of a UK resident
  • the grant of a ‘lien’ on the account
  • information which comes to the financial institution’s attention , e.g. by branch employees carrying out ‘know your customer’ checks
  • the existence of a UK business in which the investor has an active interest
  • frequent or regular personal visits to the financial institution, cash transactions in the UK etc

If financial institutions receive any information suggesting that the investor is or may be resident in the UK, or that the trustees are or may be resident, or that any of the beneficiaries are or may be resident, they should seek clarification. Interest can continue to be paid gross for up to 90 days after the information is received while enquiries are made if the saver:

  • confirms that they are still NR in the UK the financial institution can continue to pay interest gross
  • confirms that they are now a UK resident the R105 signal must be removed from the account and future interest paid after the date of the confirmation must be paid net. The financial institution should not retrospectively deduct BRT from any interest already paid gross in the tax year, but should inform the investor that any such interest is taxable and needs to be declared to HMRC
  • responds to say that he is uncertain of his current residence position, the financial institution can continue to pay gross until the 5 April following the saver’s response, after which date tax must be deducted from any future interest payments. If the investor provides confirmation of his residence position before the following 5 April, the financial institution should proceed in accordance with either the first or second bullet above

If, after 90 days there is no response from the investor, the financial institution must remove the R105 signal from the account and make future interest payments net. Following the change to net, if the saver contacts the financial institution and confirms that they are still not resident in the UK:

  • the R105 signal can be reinstated and interest payments can be made gross, and
  • any interest payments made net since the start of the tax year (but not those made in an earlier tax year) can be corrected and the tax refunded

HMRC recommends that where the matter is resolved without correspondence the financial institution’s records why the declaration is considered to remain valid.

4. HMRC telephone numbers

If any bank or building society wishes to include an HMRC telephone number in a mailing to their customers, they must contact the HMRC Savings and Share Schemes office for prior approval. HMRC numbers were updated recently so we need to be sure the most appropriate number is used. We also need to be aware of anything that may increase the number of calls to HMRC.

5. Future Articles

Part of the purpose of the TDSI Bulletins is to clarify areas of the TDSI Guidance Notes. If you feel that any aspect of the guidance is unclear please contact Savings and Share Schemes office at:

HMRC Savings and Share Schemes SO708

Room 100
Po Box 201
Bootle
L69 9AJ