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HMRC internal manual

Company Taxation Manual

From
HM Revenue & Customs
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Investment trusts: interest distributions: gross interest distributions - evidence required to demonstrate the residence condition

Payment of interest distributions to non-resident participants without deduction of tax -regulation 17 SI 2009/2034

An investment trust (IT) or prospective investment trust (PIT) must (provided they have a valid declaration) pay interest distributions without deducting tax where the recipients (beneficial owners of shares) are:

  • individuals who are not ordinarily resident in the UK, or
  • personal representatives of deceased not ordinarily resident individuals who held the shares concerned immediately before their deaths, or
  • persons who satisfy the residence requirements in cases where the whole of an interest distribution is made to, or received under, a trust and is, or falls to be treated as, or is deemed to be, income of those persons and not the trustees of the trust, or
  • certain trusts where the trustees are not resident in the UK.

In each of these cases the shareholder(s) must have made a valid declaration (form R105) or approved substitute), in the format specified for that purpose, that the residence requirement is satisfied. An exception is where a shareholder is the personal representative of a deceased shareholder who had made a valid not ordinarily resident declaration that was still valid at the time of his death.

Fund administrators may use their own version of the form if this has been approved by HMRC prior to use (see CTM47565 for further information).

Non-residence declarations

If, when an interest distribution is made, the IT or PIT holds a valid declaration made by a recipient it must pay interest distributions without deducting tax. Declarations received after the distribution was made cannot be applied retrospectively and the IT or PIT must not make any adjustment for the tax deducted in respect of distributions already paid.

On receipt of a declaration the IT or PIT must satisfy itself that it has no information to suggest that anything in it is, or may be, incorrect. If such information is held, tax must be deducted from any interest distribution made to the shareholder concerned, unless the error is minor in nature and has no bearing on the not ordinarily resident status of the recipient.

The declaration contains an undertaking that the shareholder will notify the IT or PIT if he or she becomes ordinarily resident in the UK. If the IT or PIT receives such a notification it must deduct tax from all interest distributions made following the date on which it received the notification.

An IT or PIT may receive other information that gives it reason to believe that a declaration has ceased to be valid or was not valid at the time that it was made. Where a declaration is no longer valid the IT or PIT must deduct tax from all interest distributions made on or after the date on which that information was obtained. If it is not clear whether declarations have become invalid, the IT or PIT may make enquiries in order to satisfy itself that the declaration remains valid. If the IT or PIT is unable to verify the declaration within ninety days of the initial enquiry then tax should be deducted from future distributions. The IT or PIT may only continue to pay interest distributions without deducting tax following its enquiries if it has satisfied itself that the declarations remain valid.