The following Tax Q&A provides comprehensive and up to date legal information covering:
Unless an exemption or relief applies, payments of UK source yearly interest (or amounts that are treated by tax legislation as payments of yearly interest) are subject to UK withholding tax at the basic rate, which is currently 20% (Income Tax Act 2007, s 874). For more information, see Practice Note: UK withholding tax on yearly interest.
For UK tax purposes, where a UK company issues funding bonds to satisfy its liability to pay interest to a creditor, the issue of the funding bonds is treated for UK income and corporation tax purposes as if it were a payment of so much of that interest as equals the market value of the funding bonds at their issue (Income Tax (Trading and Other Income) Act 2005, s 380 and Corporation Tax Act 2009, s 413; see also HMRC's Corporate Finance Manual at CFM37410). For more information, see Practice Notes: UK withholding tax on yearly interest (see section called: Examples of what constitutes yearly interest), What is interest? — Funding bonds and Administration of UK withholding tax on yearly interest and other types of income — Paying tax to HMRC (see section called: Amount).
Since the issue of funding bonds is treated as interest for UK tax purposes, UK withholding tax applies to the issue of such funding bonds (where their issue satisfies (in full or in part)
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