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HMRC internal manual

Company Taxation Manual

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HM Revenue & Customs
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Investment trusts: interest distributions: duty to deduct tax from interest distributions - general

Where an interest distribution to a recipient is made by an investment trust (IT) or prospective investment trust (PIT) there is a range of circumstances in which payments must be made without deduction of income tax. These are:

  • where the recipient (beneficial owner of the shares) is a company or the trustees of a unit trust scheme (regulation 13(3) SI2009/2034). Note that the term ‘recipient’ is defined at regulation 3(2) SI2009/2034. The definition excludes nominee companies (as they are not beneficial owners) and the trustees of a bare trust.
  • where there is an automatic entitlement to payment without deduction in circumstances where the statutory obligation to deduct in ITA07/S874 (2) is over- ridden for particular types of recipient (CTM47550).
  • where the recipients satisfy one of the other conditions listed in regulation 13 SI2009/2034:

    • the reputable intermediary condition (CTM47555),
    • the residence condition (CTM47560).

    Subject to the rules set out in each case these conditions enable individuals who are not ordinarily resident in the UK or who are resident but have no liability to income tax to receive interest distributions without deduction of tax.
     
    Under regulation 22 SI2009/2034, on the first occasion when an IT or PIT makes an interest distribution without deduction of tax to one or more shareholders, it should notify HMRC in writing, within 14 days of the end of the tax year in which the payment is made, to:

    HM Revenue and Customs Audit Manager

    Audit Unit (Information Returns)
    St Johns House
    Merton Road
    Liverpool
    L75 1BB

    Tel: 0151 472 6165 or 6175

    Fax: 0151 472 6003

    Email: savings.audit@hmrc.gsi.gov.uk

    Failure to do so may result in a penalty being levied.