Belka Tax paid in Poland. Can HMRC still inquire about interest from your account?

"But the bank already collected the tax. Everything has been settled."

This is one of the most common responses I hear during consultations with individuals living in the UK who still hold a bank account in Poland. For most of them, the matter seems straightforward – the bank calculated interest, automatically deducted 19% tax, and transferred it to the Polish tax office. Since the tax was withheld at source, it's hardly surprising that many consider the issue definitively closed.

Such a belief is understandable, as this is precisely how the Polish interest taxation system was designed. However, the situation changes when the account holder is a tax resident of the United Kingdom. In such cases, the same income is assessed not only according to Polish regulations but also through the lens of the British tax system.

How does the Belka tax work in Poland?

Interest from bank deposits, savings accounts, and some other financial products in Poland is subject to a flat-rate income tax, commonly known as the Belka tax. The taxpayer does not have to calculate the amount due or file additional declarations themselves. All actions are performed by the bank.

After calculating interest, the bank automatically deducts the due tax and remits it to the tax office. The account holder receives the amount already reduced by tax, and the entire settlement occurs without their involvement. For individuals living exclusively in Poland, this means the income has been correctly settled and requires no further action.

This solution primarily aims to simplify taxpayers' obligations. There is no need to fill out forms, perform additional calculations, or declare this interest in the annual tax return. From the perspective of Polish regulations, the entire process concludes when the tax is collected by the bank.

Why isn't the account's location the most important factor?

Individuals living in the UK often assume that since their account is in Poland, all tax obligations also remain exclusively in Poland. This line of thinking seems intuitive, as the account is maintained by a Polish bank, and interest accrues according to Polish regulations.

However, the British tax system operates on a different premise. For HMRC, the taxpayer's tax residency is paramount, not the location of the bank account. If an individual is a UK tax resident, British regulations may also cover income earned outside the UK.

This means that interest accrued by a Polish bank is not assessed solely based on the account's location. From HMRC's perspective, it constitutes one element of the income earned by an individual who is a UK tax resident.

Does tax collection in Poland conclude the matter?

This is precisely where two different tax systems converge. In Poland, the bank automatically collects tax, and for most taxpayers, this signifies the end of the entire process. British regulations, however, view the same income through the lens of the obligations of an individual who is a UK tax resident.

This does not automatically mean that the same income will be taxed twice. The role of double taxation agreements is precisely to define the rules by which both countries share the right to tax specific incomes. However, the mere fact that a Polish bank collected tax does not yet answer whether the income has been correctly assessed according to British regulations as well.

For this reason, it's worth looking at interest from a Polish account more broadly than just through the information visible on a bank statement. The fact that the bank fulfilled its obligations under Polish regulations does not mean that the analysis concludes under British law either.

What does the agreement between Poland and the UK state?

In the case of income earned in two countries, the provisions of the double taxation agreement concluded between Poland and the United Kingdom are of significant importance. Its purpose is to determine which country and to what extent can tax specific types of income, and how to avoid double taxation of the same income.

With respect to interest, the agreement provides for special rules that differ from the standard national tax rate levied in Poland, meaning that the method of taxing interest under Polish regulations does not always align with the rules stemming from the international agreement.

This is precisely why the analysis of such income should not be limited solely to checking whether the bank withheld tax. For individuals residing in the United Kingdom, the provisions of the international agreement and the method of income settlement according to British regulations are also important.

Why does the bank withhold 19% if the agreement states 5%?

This question arises very frequently, especially among those who are analyzing the double taxation agreement between Poland and the United Kingdom for the first time. Article 11 of the Convention states that the tax withheld at source on interest should not exceed 5% of the gross amount of interest, provided the conditions stipulated in the agreement are met. At the same time, Polish banks typically withhold 19% tax in accordance with national regulations.

This does not mean that the bank is acting unlawfully. Financial institutions primarily apply Polish tax regulations, and the application of international agreement provisions depends on specific circumstances and the rules stemming from the Convention itself. For this reason, the amount of tax withheld by the bank does not always correspond to how the income should ultimately be assessed in relations between Poland and the United Kingdom.

What does this mean for a person living in the United Kingdom?

For a UK tax resident, interest from a Polish account is not solely income assessed under Polish regulations. HMRC analyzes it as part of the taxpayer's worldwide income, and it is British rules that determine whether and how they should be included in the tax return. Information regarding the taxation of foreign income by British residents can be found in HMRC guidelines regarding foreign income.

This does not automatically mean that tax needs to be paid a second time. Double taxation agreements were created precisely so that the same income would not be taxed twice. However, each situation requires determining which country has the right to tax a given income and how to account for tax paid abroad in accordance with applicable regulations.

Why does this topic often go unnoticed?

Interest from savings accounts rarely constitutes a significant item in a household budget, as these are amounts that appear automatically in the account and require no action. This often leads account holders to focus solely on the fact that the bank withheld tax, without analyzing further tax implications.

In the case of international settlements, however, not only the amount of income but also its classification in both countries is important. Even relatively small interest amounts may be subject to rules stemming from UK tax residency. For this reason, it is worth looking at such income more broadly than just through the lens of information visible on a bank statement.

Belka tax was designed to maximally simplify the settlement of interest in Poland. For individuals who are solely Polish tax residents, the bank's withholding of tax usually concludes the entire process. The situation may be different for individuals living in the United Kingdom, as income from a Polish account is also assessed from the perspective of British regulations and the provisions of the double taxation agreement.

If, in addition to interest, you also earn other income from Poland, such as property rental, apartment sales, dividends, or pensions, the analysis of your entire tax situation becomes even more important. In TaxOne we help determine how to correctly declare income earned in Poland and the UK, and explain what obligations arise from the regulations in force in both countries.

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