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HMRC internal manual

International Manual

HM Revenue & Customs
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DT applications and claims - Types of income: -Interest

Bank and Building Society Interest

It is possible for interest that is paid by banks and building societies to be paid without deduction of tax. Gross interest is paid under the terms of a scheme that is administered by each institution and is subject to audit by HM Revenue and Customs. Not all banks and building societies choose to operate the scheme. Interest that is paid on accounts held at branches of these banks and building societies is paid after deduction of tax.

Tax deducted from Bank and Building Society Interest is repayable under the interest article of the Double Taxation Agreement (DTA). You need evidence that tax has been deducted. You can accept a letter or statement from the building society or a copy of the pass book entry. It is not possible for an exemption authority to be issued. Instead the account holder should be advised to ask the bank or building society if they operate the gross payment scheme for interest. And, if so, what information does the bank require in order for tax not to be deducted from future payments of interest.