On 19 December 2017, the Court of Appeal held13 that statutory interest payable on an insolvency (under rule 2.88(7) IR 1986) is “yearly interest” for UK tax purposes. Such statutory interest is therefore subject to UK withholding tax (20%). The Court's decision reversed the earlier High Court decision.
The facts of the case are somewhat unusual (it related to the Lehman Brothers insolvency) in that there was a substantial surplus in the administration and the statutory interest was estimated at £5bn.
The Court was not persuaded by arguments, successful before the High Court, that interest could not be “yearly” if it did not accrue over time and was not capable of recurrence.
The decision can be viewed here.