HMRC have published a new form and guidance for UK withholding tax (WHT) on interest payments that benefit from a reduced double taxation treaty rate. This formalises a previous concessionary treatment (now withdrawn) whereby companies, individuals or trusts who paid interest without obtaining advance clearance from HMRC could claim to apply a reduced double taxation treaty rate to the payment of interest. This applies to disclosures on or after 2 November 2026. Further details are awaited from HMRC on their approach to previous claims for such relief made when the concession was under review.
Background
UK WHT is due on payments of UK-source yearly interest, subject to certain exceptions. The rate of UK WHT on interest is the savings basic rate, which is currently 20 percent (but expected to rise to 24 percent from 6 April 2027 given the announcement in the 2026 Budget). However, double taxation treaties that the UK is party to may reduce the rate, in many cases down to a nil rate of WHT, depending on the country in question.
Where WHT is due on interest that benefits from a reduced tax rate under the double taxation treaty, advance authorisation is needed from HMRC for impacted persons (for example, companies, individuals and trusts) to apply the reduced treaty rate when making interest payments. Where a person failed to obtain advance clearance, they are obliged to pay the WHT to HMRC at the headline rate (currently 20 percent increasing to 24 percent from 6 April 2027), but the lender could then make a claim for repayment of the WHT that benefited from the double taxation treaty rate.
This meant that if a person made a payment of yearly interest that was subject to WHT, failed to obtain such authorisation from HMRC, and failed to withhold tax at the headline basic rate of income tax on interest, they would be in breach of their WHT obligations. HMRC previously allowed a concessionary treatment where a person made a voluntary disclosure that they had failed to withhold tax on a payment of interest. Under this concessionary treatment, if a nil double taxation treaty rate applied to the interest payment, HMRC would only charge late payment interest from the date the WHT was otherwise due. However, since November 2024, HMRC had paused processing of voluntary WHT disclosures while they considered their position.
Revised approach
HMRC have implemented a formal claims process in place of the previous concessionary treatment. Effective from 2 November 2026, the previous concessionary treatment is withdrawn, and persons can instead complete a form to make a claim for obtaining the benefit of a reduced double taxation treaty rate for the payment of interest that is subject to UK WHT. This is relevant for scenarios where a person has failed to obtain advance authorisation from HMRC to apply the treaty rate, resulting in a failure to deduct WHT. Distinguishing between scenarios where the total amount paid by the borrower was the gross interest, and those where the payment was the net interest plus a gross up clause amount, will be important to accessing the claim, as the claim process will only apply to the former (i.e. when there is a failure to deduct, rather than a failure to account for the tax).
Such a claim should also provide supporting evidence, including a certification of residence for the lender and written declaration from the lender that they are the beneficial owner of the interest. If a claim is made, and HMRC are satisfied that the reduced double taxation treaty rate applies, then they will charge late payment interest from the date WHT was due until the date a valid claim is made (or, if earlier, the date of payment of the original WHT due).
Claims must still be made within four years after the relevant year of assessment, which is based on when the interest was paid. This is shorter than the potential time limit for HMRC to raise an assessment of six years (or potentially longer for careless or deliberate errors), or 12 years under the extended time limits for offshore matters and offshore transfers. Impacted persons therefore still risk a scenario where they qualify for a 0 percent WHT rate under the relevant treaty but are assessed on the headline rate with no ability to reclaim if HMRC raise an assessment after the four year claim window has passed.
This therefore appears to be a formalisation of the previous concessionary treatment that HMRC were applying before 2025.
Historic claims
HMRC note they are still considering their approach for disclosures made before 2 November 2026 that were subject to a pause in processing and will publish further guidance once they have finalised their approach.
Future reform?
Separately, earlier this year consultation was sought on reforms to the UK withholding tax regime for interest, which sought views on moving to a self-assessment based regime, similar to the WHT for royalties. As part of the corporate tax simplification for business investment publication at the 2026 Budget the Government indicates that it will explore a self-assessment based approach further, while engaging with concerns identified from the consultation.
For further information please contact: