CTM49370 - Building societies: deduction of income tax: deduction of income tax from interest on marketable securities

A building society is required to deduct savings rate income tax from the interest paid on certain marketable securities under ITA07/S889. The requirement applies to any security including a share, which is listed, or capable of being listed, on a recognised stock exchange at the time the dividend or interest is payable.

Section 889 applies to interest on Permanent Interest Bearing Shares (PIBS) (see CTM49480) and interest on certain other marketable securities, such as index-linked stocks and negotiable bonds issued by some societies.

Interest on the following securities is not covered by section 889 and is instead payable gross:

  • qualifying certificates of deposit - these are certificates of deposit for not less than £50,000 (or the equivalent in foreign currency), issued for a period not exceeding five years,
  • qualifying uncertificated eligible debt security units as defined in ITA07/S986,
  • quoted Eurobonds satisfying the circumstances specified in ITA07/S987.

The effect of the requirement to deduct savings rate income tax is that individuals who are not liable to pay tax cannot register to have such interest paid without deduction of income tax.

Similarly, it is not possible for:

  • individuals who are not ordinarily resident in the UK,
  • charities,
  • exempt friendly societies,
  • exempt approved retirement benefit and personal pension schemes,

to have interest paid gross by providing a declaration of their tax status.

Non-resident investors (including companies) may be entitled to receive interest on PIBS and other marketable securities without deduction of tax, or after deduction at a reduced rate, under the terms of a double taxation agreement. Claims for exemption or partial relief should be made to Technical Advice Group, HMRC Residency, Nottingham, (see DT1800).

There is guidance on PIBS at INTM342140 and Eurobonds at INTM342160.