Why is the tax on PIDs withheld in my ISA?

Although ISAs are tax-efficient investment accounts, tax is initially withheld on Property Income Distributions (PIDs) due to how UK Real Estate Investment Trusts (REITs) are structured.
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REITs are required by law to withhold 20% tax at source when distributing PIDs, regardless of whether the shares are held in an ISA. This tax is deducted automatically before the payment reaches your account.
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However, because ISAs are tax-free, this withheld tax shouldn’t apply in the long run. Freetrade reclaims this tax from HMRC and reimburses it back to your ISA once the claim is processed.