How borrowers can eliminate withholding tax – and why TISE is the market standard

Twenty pence of every pound. That is the amount HMRC currently withholds from UK source interest paid to an overseas lender.

Many borrowers mitigate this by using the Quoted Eurobond Exemption (“QEE”). The QEE is a statutory mechanism that automatically removes UK withholding tax obligations on debt interest where the relevant security is listed on a recognised stock exchange.

Under Section 874 of the Income Tax Act 2007, any person paying “yearly interest” from a UK source must deduct income tax at the basic rate (currently 20%) and account for it to HMRC. In practice, “yearly interest” captures virtually all forms of corporate debt, including private equity loan notes, intra-group funding arrangements, bonds and mezzanine instruments.

Importantly, the withholding obligation is not limited to UK borrowers. The test in Section 874 is whether the interest has a UK source, and that is ultimately a question of fact rather than a simple residence test. HMRC typically consider a range of factors, including the residence of the debtor and the location of its assets, where the creditor would realistically enforce the debt, and the substantive origin of the funds used to service the interest. Other indicators such as the governing law of the loan agreement, the jurisdiction for legal action, and the location of any guarantor or security, may also be relevant.

Because these indicators can point in different directions, the analysis is often uncertain, and HMRC has historically taken a broad view of what constitutes a UK source. In practice, where there is any meaningful UK nexus, HMRC is likely to challenge attempts to characterise interest as non-UK source, leaving overseas lenders exposed to the same withholding risk.

Double taxation treaties can reduce the rate, but obtaining HMRC clearance can take several months, and income tax must be withheld in the interim. The Qualifying Private Placement exemption was introduced in 2016 but it prohibits connected-party lending, excludes offshore financial centres, and imposes a subjective commercial purpose test. Neither solution works well for the transactions that need relief most.

Certain listed debt instruments are automatically outside scope of withholding tax under three interlocking provisions of ITA 2007:

• Section 882 removes the duty to withhold income tax on interest paid on a “quoted Eurobond”;
• Section 987 defines that term as a security (i) issued by a company, (ii) carrying a right to interest, and (iii) listed on a recognised stock exchange; and
• Section 1005 defines “recognised stock exchange” as any market formally designated by HMRC.

Despite the name, the security need not be denominated in euros or publicly traded. It can be a bilateral loan note, a payment in kind (PIK) instrument where interest is rolled up into additional debt, or structured finance security. The definition is mechanical. If the three conditions are met when interest is paid, the exemption applies automatically. HMRC acknowledged following a 2012 consultation that “technical listings” held by related parties with no public trading intention represent established commercial practice. The proposals to restrict such listings were withdrawn and have not been revisited.

The timing rule is non-negotiable. Securities must be admitted to the exchange’s Official List at or before the date interest is paid. An application under review is insufficient. This single requirement drives the market’s preference for listing venues with fast, predictable admission processes.

The International Stock Exchange (“TISE”) is an independent European listing venue uniquely positioned outside of the EU & UK Prospectus, Market Abuse and Securitisation Regulations. Headquartered in Guernsey, TISE is HMRC-designated under Section 1005. Its Official List comprised 4,818 securities worth £797 billion at the end of 2025, spanning 38 territories.

The TISE market for listed debt, the Qualifying Investor Bond Market (QIBM), offers a straightforward listing approach. By listing loan notes on TISE before the first interest payment, the withholding obligation disappears entirely.

QIBM’s popularity for debt listings stems from a number of practical advantages:

1. a dedicated all-inclusive rulebook which sets out a proportionate user-friendly disclosure regime;
2. the QIBM requires only a 14-day document inspection, not public dissemination;
3. a flexible financial reporting regime which accepts accounts prepared under UK GAAP, US GAAP or IFRS;
4. TISE guarantees initial review within three business days, with same-day listing available for PIKs;
5. from 1 July 2022, TISE does not require routine annual financial statements to be filed with the exchange following admission; and
6. total costs, including listing agent fees, are modest relative to the tax efficiencies achieved, making listings attractive even for relatively low-value debt issuances

The QEE is widely used across a broad range of financing structures because of its straightforward, rules-based nature and the absence of connected-party restrictions. By allowing interest to be paid without withholding tax, it can significantly reduce tax leakage and overall financing costs, making it an efficient tool for structuring debt within property and investment groups.

While the exemption is well established in private equity markets with over 2,135 PE debt securities listed on TISE at the end of 2025 and 407 new listings during the year, it is equally relevant to real estate structures. UK REITs and property investment groups frequently use the QEE to support shareholder and intra-group financing, with 41 UK REIT vehicles listed on TISE representing more than 40% of that market.

More broadly, the exemption is used by intra-group treasury structures, high-yield bond issuers (which saw 220 new TISE listings in 2025, a 74.6% increase year-on-year), and securitisation and CLO structures. The breadth of its adoption reflects the QEE’s practical value as a reliable and scalable solution for businesses raising debt capital.

The Isle of Man does not host the exchange. Its role is as a preferred SPV jurisdiction. At 0% standard corporate tax (with narrow sectoral exceptions for banking, large retail, and Isle of Man property income) and no withholding tax on outgoing interest, an Isle of Man SPV receives UK interest gross via the QEE, bears no local tax, and distributes onward to ultimate investors without friction.

The result is a structurally clean flow: interest leaves the UK gross, passes through the Isle of Man without tax, and reaches its destination intact.

Andco Trust and Corporate Services Limited is a Category 1 TISE Listing Member. For guidance on TISE listings, QEE structuring, or Isle of Man SPV incorporation, please contact us.

Andco Trust and Corporate Services Limited does not provide taxation advice and the information contained in this article has been drawn from a number of open sources. For further information relevant to personal circumstances, including tax obligations in their own country of residence, clients should obtain their own independent professional advice. We would be happy to liaise with client’s advisors, or introduce professional advisors to clients.