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HMRC internal manual

Corporate Finance Manual

Other tax rules on corporate finance: deduction of tax: deposits that are not relevant investments

Investments that are not relevant investments

ITA07/S856 to S870 list deposits that are not relevant deposits. The major categories are described below.

Not ordinarily resident (NOR) accounts

A bank or other deposit taker can pay interest gross on an account held by an individual if they hold a valid declaration by the account holder that he or she is not ordinarily resident in the UK. The ‘NOR declaration must be made on form R105 (or an approved substitute). An NOR declaration can be made for a joint account, or for a partnership of individuals, if all of the individuals concerned are NOR. The trustees of a discretionary or accumulation trust can also make an NOR declaration if they are NOR, and all of the beneficiaries of the trust are either NOR individuals or non-resident companies.

Qualifying certificates of deposit and qualifying time deposits

A qualifying time deposit is not a relevant investment. The definition is at ITA07/S866. It is a deposit of more than £50,000 (or the foreign currency equivalent) that matures on a specified date, which must be less than 5 years from the date on which the deposit is made. There must be no right to increase the deposit or to make partial withdrawals, and it must be non-assignable. There is an equivalent provision for transferable certificates of deposit (as defined in ITA07/S865. They are not relevant investments if the principal is more than £50,000 and the instrument has a maturity of less than 5 years.

General client accounts

A general client account is one that:

  • is not held for one or more particular clients, and
  • where the account holder’s use of the money is governed by statutory regulations that require them to pay interest to some or all of the clients on whose behalf the monies are held.

Banks are likely to hold general client accounts for solicitors, or for stockbrokers, fund managers or other financial intermediaries whose handling of client monies is regulated by the Financial Services and Markets Act. A designated client account is a relevant deposit unless one or more of the clients is a company, or all of the clients are not ordinarily resident in the UK.

Foreign banks and foreign branches

A deposit is not a relevant deposit if it is held by:

  • a non UK branch of a UK bank, or
  • any branch of a non UK bank other than one situated in the UK.

Other exceptions

A debenture issued by the bank is not a relevant deposit; nor is a debt on a security that is listed on a recognised stock exchange. There is also an exception for loans made by another deposit-taker in the ordinary course of his business (although since most deposit-takers are companies, interest on such loans will normally be payable gross in any case).

Tax-exempt savings products

Interest on cash deposits held within Individual Savings Accounts (ISAs) is outside of the TDSI scheme.