INTM342130 - DT applications and claims - Types of income: -Interest

Bank and Building Society Interest

The obligation to deduct tax from interest payments by deposit takers was repealed from 6 April 2016. From that date, nearly all interest paid by banks and building societies is paid gross without deduction of withholding tax. See HMRC’s Savings and Investment Manual at SAIM9000 onwards for more information.

The following guidance only applied for periods prior to 6 April 2016:

During periods prior to 6 April 2016, it was possible for interest that was paid by banks and building societies to be paid without deduction of tax. Gross interest was paid under the terms of a scheme that was administered by each institution and was subject to audit by HM Revenue and Customs. Not all banks and building societies chose to operate the scheme. Interest that was paid on accounts held at branches of these banks and building societies was paid after deduction of tax.

Tax deducted from Bank and Building Society Interest was repayable under the interest article of the Double Taxation Agreement (DTA). You needed evidence that tax had been deducted. You could accept a letter or statement from the building society or a copy of the pass book entry. It was not possible for an exemption authority to be issued. Instead, the account holder should have been advised to ask the bank or building society if they operated the gross payment scheme for interest and, if so, what information did the bank require in order for tax not to be deducted from future payments of interest.