HMRC consults on simplifying treaty relief for overseas interest payments

On 13 July 2026, HMRC launched a consultation seeking views on how the UK’s treaty relief process for withholding tax on cross-border interest payments could be simplified.

Current regime

Under the current UK rules, companies and certain persons paying interest have an obligation to deduct from those payments an amount representing income tax at the basic rate (20%). The UK has a wide network of Double Taxation Agreements (‘DTAs’) which often reduce or remove the UK’s taxing rights over such payments to residents of the treaty partner. However, treaty relief from interest withholding is not automatic, and advance clearance must be applied for and obtained, which introduces uncertainty and delays.

Why is HMRC consulting?

The government acknowledge that the current process is costly and cumbersome (particularly in a deal context), and does not compare favourably to some international counterparts, as well as the UK system for payments of royalties.

Potential areas of change

One change under consideration is whether UK payers should be permitted to self-assess and apply treaty relief at source without first obtaining an HMRC direction (as is the case for royalties). HMRC notes “guardrails” would need to be introduced alongside this to prevent abuse.

Who could be affected?

The proposals will affect UK residents who anticipate restructuring existing cross-border debt, or plan to borrow from an overseas lender in the future.