SAIM9240 | Payment of interest overseas: loan where both recipient and payer are outside the UK

There is a general obligation on payers of UK source interest payments to non-residents to deduct income tax and to account for the tax to HMRC under ITA07/S874 (1) and (2).

It may be possible that such payments of interest will fall to be considered under domestic tax law as having a UK source, even where both recipient and payer are resident outside the UK. Further information on the definition of UK source is given at SAIM9090. The onus is on the payer to decide whether tax is to be deducted, having regard to settled case law principles and all the facts surrounding the loan.

Where the payer concludes that the interest is UK source, so that it is under an obligation to deduct tax, the recipient may be entitled to make a claim for repayment of tax or application for relief at source if there is a double taxation agreement between the UK and the recipient’s country of residence. See “Applications for relief at source on interest payments where both recipient and payer are outside the UK” which is available on the HMRC website.