Deductability of spousal interest

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There is no DTA between UK and Gibraltar and hence UK income tax at the basic rate of 20% should be withheld from each interest payment if the interest constitutes annual interest arising within the UK.

It is almost certainly annual interest.

As to whether UK source depends upon on a number of factors. However, if the interest is paid out of UK source rental income; the borrowing is secured on UK situs property; any default is enforceable in the UK then it is likely HMRC will take the view the interest has a UK source.

If the borrowing is not so secured; interest is paid out of non-UK source monies then possibly the interest may be non-UK source.

However, this is a very complex area and ideally if the stance is taken that the interest is non-UK source appropriate disclosure should be made in the tax return.