Exemption from deduction of tax at source?

Exemption from deduction of tax at source?

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An individual who is resident, ordinarily resident and domiciled in USA is a director and shareholder of a UK resident close trading company, and receives interest paid to him in USA on the credit balance on his director's loan account.

Although neither a bank nor building society, the UK company appears on the above facts to be a "deposit-taker". Form 105 appears to allow for gross payment of interest by a bank, building society **or deposit-taker**. Nothing in the notes on the reverse of the form seem to indicate that exemption is unavailable in this case. The form is to be found at:

http://www.hmrc.gov.uk/pdfs/r105.pdf

Am I missing something? It surprises me if interest can be paid gross under the above circumstances merely by election.

Clint Westwood

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By User deleted
05th Jan 2006 12:24

Deposit-taker
Authority for the gross payment of interest by a deposit-taker to a not ordinarily resident saver is given by Section 481(5)(k) ICTA 1988.

Deposit-taker for these purposes is defined in Section 481(2), and basically means the Bank of England, a local authority or a company governed by the Financial Services & Markets Act 2000.

Consequently, I do not think that it covers a close trading company, so the interest will need to be paid under deduction of tax.

Hope this helps.

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