The Manufactured Interest (Tax) Regulations 1997

Liability for tax where the manufacturer receives the interest of which the manufactured interest is representative

4.—(1) The recipient of a payment of manufactured interest shall not be liable to account for income tax under paragraph 3(5) of Schedule 23A in any case where he shows that—

(a) the interest manufacturer was entitled to payment of the interest of which the manufactured interest is representative either—

(i) as the holder of the securities concerned, or

(ii) directly or indirectly from a person from whom he acquired those securities, or to whom he transferred them, and who was so entitled as the holder of those securities, and

(b) the amount of the payment of interest actually received by the interest manufacturer does not exceed the amount found by deducting from the gross amount of the interest such tax as would have been deducted if the payment of interest had been made to the recipient.

(2) Where paragraph (1) applies the interest manufacturer shall be liable for tax, in respect of the payment of manufactured interest, in an amount equal to the amount (if any) of relief from United Kingdom tax to which, assuming him to have made a claim under arrangements having effect by virtue of section 788, the interest manufacturer is entitled in respect of the payment of interest received by him.

(3) The amount of tax for which the interest manufacturer is liable shall be set against the amount of relief from United Kingdom tax to which, on the assumption made in paragraph (2), he is entitled as mentioned in that paragraph.

(4) Where paragraph (1) does not apply by reason only of the fact that sub-paragraph (b) of that paragraph does not apply, the amount of income tax for which the recipient of the payment of manufactured interest shall be liable to account under paragraph 3(5) of Schedule 23A shall be reduced to an amount equal to the amount by which the amount of the payment of interest actually received by the interest manufacturer exceeds the amount found as mentioned in that sub-paragraph.