Withholding Tax

Tax in respect of payments made to an individual is sometimes collected under a requirement for the payer to make a deduction on account of tax before making the payment. This deduction is generally known as 'withholding tax'.  It frequently applies to dividends (although not those paid by UK companies), interest and royalties. This liability is often reduced or eliminated under a double taxation treaty and is accordingly reclaimed, or used to offset, as a 'tax credit' on the foreign pages of the tax return.

The term can also apply to tax calculated by a letting agent and deducted from rental income concerning a non-resident letting out UK property. The tax can be bypassed by the individual filing UK tax returns (see 'NRL Scheme') and, where there has been prior withholding in the tax year up to the point of approval, the tax is entered on the property pages of the tax return for potential adjustment and associated reclaim or offset.