If your group has a UK subsidiary making loan interest or royalty payments to overseas entities, you need to be aware of the UK Withholding Tax (WHT) rules that apply. This is particularly important post-Brexit, because previous EU reliefs no longer apply. Many of our clients are surprised to learn that unless exemptions are in place, the UK company must withhold 20% of such payments and remit this to the UK tax authorities – HM Revenue & Customs (HMRC). We help ensure your cross-border arrangements remain compliant and tax-efficient.
Prior to Brexit, many groups relied on the EU Interest & Royalties Directive to eliminate WHT on intra-group interest and royalty payments within the EU. Although an application for gross payment was technically required, the lack of enforcement meant this was often overlooked.
Since Brexit, the UK now applies its domestic legislation: a flat 20% withholding tax applies on relevant cross-border payments unless:
Failure to apply for an exemption means the UK subsidiary is legally obliged to deduct and report withholding tax—even if the treaty provides for a 0% rate.
We specialise in supporting multinational groups with UK subsidiaries. Our team understands the nuances of group financing and will:
Whether your UK entity has one intra-group loan or several, we can help you manage these obligations efficiently.
The UK subsidiary must deduct 20% tax from interest paid to an overseas lender unless a valid exemption is in place. This tax must be reported and paid to HMRC quarterly.
The same 20% WHT rule applies to royalties or licence fees paid by a UK company to an overseas group company. Without an exemption, the UK company must withhold and remit tax.
Even with a withholding tax exemption, interest must still be tax-deductible. UK thin capitalisation rules mean interest will only be deductible if the loan terms, amount and pricing reflect what an independent third party would accept. Our transfer pricing specialists can assist.
The overseas lender or licensor applies for the exemption from withholding tax.
No. A formal application must be made and HMRC approval received before gross payments can be made.
We can assist with reviewing your position and rectifying any underpaid withholding taxes or missed filings.
Generally, yes, if they are over one year in duration and the lender is based outside the UK.
A DTTP allows the lender to make multiple loans to UK companies and speeds up the exemption process. The UK borrower still needs to notify HMRC for each loan.
Yes, broadly. UK companies paying royalties to overseas licensors must withhold 20% unless an exemption is obtained.
If your UK subsidiary makes—or plans to make—interest or royalty payments to overseas group companies, get in touch. We’ll help ensure your group structure is tax compliant, efficient, and free of costly withholding tax errors.
Managing Director
Senior Manager
Head of Direct Taxes
