SAIM9200 - Payment of interest overseas
Overview
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.
»Ê¹ÚÌåÓýapp 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.
»Ê¹ÚÌåÓýapp 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. »Ê¹ÚÌåÓýapp non-resident recipient must make a formal application for exemption or for the reduced rate. See SAIM9210 for further details.
Obligation to deduct - legislation and definitions
Legislation
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. »Ê¹ÚÌåÓýapp 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 madeâ€� (ss1, 2).
Definitions
Interest SAIM2030
Yearly interest SAIM9070
Arising in the UK SAIM9090
Usual place of abode SAIM9080