Jurisdiction(s):
United Kingdom

Related legal acts

Key definition

Withholding tax definition

What does Withholding tax mean? Withholding tax is tax deducted at source from certain payments—commonly dividends, interest and royalties—often where the payee is non‑resident. It is a descriptive term used across tax practice; specific obligations and rates are set by statute and treaty (for the UK, principally the Income Tax Act 2007; for Ireland, the Taxes Consolidation Act 1997) and by double taxation agreements. United Kingdom (England & Wales, Scotland and Northern Ireland): withholding typically applies at 20% to interest and royalties, subject to domestic exemptions and treaty relief. The UK generally does not impose withholding on dividends, save for certain distributions (for example, REIT property...

Interest for UK tax and withholding: case law meaning, statutory modifications, and treatment of premiums, discounts, guarantees, compensation, alternative finance, funding bonds, recharacterised/disguised interest, and statutory interest in administration

Published by a LexisNexis Tax expert

Practice notes

Interest

Interest is a key concept within UK tax law. In particular, a duty to withhold UK income tax can arise on payments of specified categories of interest; for further detail, see Practice Note: UK withholding tax on yearly interest. Be aware that, from 6 April 2016, the tax deduction scheme for interest (TDSI) no longer applies. Broadly, before 6 April 2016, the TDSI obliged a deposit-taker (ie a bank) to deduct UK income tax from interest paid or credited before 6 April 2016 on a deposit held by a UK resident individual, an individual’s personal representatives or trustees. For interest paid or credited on or after 6 April 2016, alongside the abolition of the TDSI (given effect by removing section 851 of the Income Tax Act 2007 (ITA 2007)), an express exemption confirms there is no requirement to withhold UK income tax under ITA 2007, s 874—ie the rule to deduct UK income tax from yearly interest—where the payment is made by a deposit-taker and the investment is a ‘relevant investment’ (ie a deposit with a deposit-taker where the person(s) beneficially entitled to the interest is/are individual(s))...

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Web page updated on 21/05/2026

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