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HMRC internal manual

International Manual

DT applications and claims - Types of income: Interest

UK source

You may receive applications for relief from UK tax where the address of the person paying the interest is shown as being outside the UK. In these cases it is not clear that the interest payments have a UK source. Because of this it is not clear that in the absence of a direction under the terms of SI1970/488 UK tax would be deducted from the interest payments.

ICTA1988/S349 obliges payers of UK-source interest payments to non-residents to deduct and account for tax at a stipulated rate to HM Revenue and Customs.

The meaning of UK-source in this context will not normally give rise to difficulties. However, where the payer of the interest is not situated in the UK, it is still possible that such payments will fall to be considered under domestic tax law as having a UK-source. The onus is on the payer to decide whether tax is properly to be deducted having regard to settled case law principles and all the facts surrounding the loan. In particular, the payer should refer to the approach and criteria endorsed by the House of Lords in the National Bank of Greece case (46TC472).

HMRC’s position in that case is outlined in Tax Bulletin 9 of November 1993. The instructions at IM3940 also refer.

If the payer of the interest gives a clear indication that it considers that it is under an obligation to deduct tax, any application for double taxation relief that is made by the recipient of the interest should be considered by reference to normal examination procedures.

A Guidance Note on the treatment of these applications is available on the National Archives website.