Introduction

Where a corporate borrower other than a financial institution pays interest with a UK source to an overseas lender, then the general rule is that income tax must be withheld at 20%. This is subject to a significant number of exceptions such as the one related to interest on quoted Eurobonds in ITA 2007, s 882.

Where a double taxation treaty exists between the jurisdictions of the borrower and the lender then WHT may be reduced partially or wholly on the making of a formal claim. For payments made before 1 June 2021, UK withholding tax on interest may also have been eliminated under the UK legislation which gave effect to the EU Interest and Royalties directive on a loan where an EEA company beneficially owns at least 25% of a UK company, or vice versa. Relief was not automatic and an application to HMRC by the overseas recipient was required in order to receive gross interest from a UK company. The UK legislation enacting the provisions of the Directive is repealed for payments made