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HMRC internal manual

Savings and Investment Manual

Payment of interest overseas


A non-resident is taxed on UK-source income.

When any person pays yearly interest to a non-UK resident, they are obliged to deduct income tax from the payment and account for that tax to HMRC in accordance with ITA07/S874(2). This obligation can be removed or changed if the benefits of a double taxation agreement are successfully claimed - and (from 1 April 2004) by making a claim under TIOPA10/S182. This obligation applies to companies, local authorities and individuals.

The tax is the liability of the non-resident recipient: deduction from payment is the collection mechanism for income taxes on non-residents who do not have a taxable presence in the UK.

The following guidance explains how the general rule for deducting income tax from payment of cross-border interest applies and describes the exceptions to and exemptions from the obligation to deduct.

In particular, where interest is paid cross-border, double taxation agreements may provide for exemption from UK tax or for a reduced rate of UK tax. The non-resident recipient must make a formal application for exemption or for the reduced rate. See SAIM9210 for further details.

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Obligation to deduct - legislation and definitions


ITA07/S874 applies, ‘if a payment of yearly interest arising in the United Kingdom is made by any person to another person whose usual place of abode is outside the United Kingdom. The person by or through whom the payment is made must, on making the payment, deduct income tax (at the rate applicable) for the year in which it is made’ (ss1, 2).


Interest SAIM2030 

Yearly interest SAIM9070 

Arising in the UK SAIM9090 

Usual place of abode SAIM9080