BIM45776 - Specific deductions - interest: Gross interest paid abroad - conditions for relief

Where annual interest is paid without deduction of tax to a person not resident in the UK all of the following conditions must be met for the interest to be an allowable deduction in the accounts.

• The trade, profession or vocation must be carried on by a person residing in the UK and either the liability to pay the interest was incurred wholly or mainly for the purposes of activities of the trade carried on outside the UK,

• the interest is payable in a currency other than sterling,

• the interest is, under the terms of the contract, payable outside the UK,

• the interest is actually paid outside the UK.

The interest is not an allowable deduction where any of the following exclusions apply.

• In the case of a trade carried on by a partnership, the interest is payable to a partner or is in respect of any share in partnership capital.
• The interest is payable in circumstances where:
• the lender controls a borrowing company or partnership,
or
• the borrower controls a lending company or partnership,
or
• both the borrower and lender, being companies or partnerships, are controlled by the same person.
• The interest falls to be deducted from any income assessable under Case IV or V (ICTA88/S65 (1)(b)).