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Where Taxpayers and Advisers Meet

NRIs and Double Taxation between India and UK

vgupta876
Posts: 3
Joined: Thu Mar 07, 2019 10:06 pm

NRIs and Double Taxation between India and UK

Postby vgupta876 » Thu Mar 07, 2019 10:19 pm

Hello

I am new to this forum and have a few questions regarding Indians living in the UK and double taxation arrangement between India and UK.

Situation -
Person born in India and is currently an Indian passport holder living in UK for more than 7 years and holding Indefinite Leave to Remain in the UK.
The person has NRE bank account in India and also a property (on loan) which is rented out.
None of the income generated in India is repatriated to the UK.

Q1 - If the person inherits some residential property or agricultural property in India,
a. Will she be liable for any tax (such as Inheritance tax) in the UK? My understanding is that since the estate is in India, HMRC does not have jurisdiction to charge IHT on this.
b. Will she be liable for CGT in the UK, if she eventually sells either residential property and/or agricultural land?

Q2. As interest earned under NREs account is exempted from Income tax in India, due to Double Taxation arrangement, does she have to declare and/or pay tax on the interest earned in this account?

Q3. If she inherits a residential property and subsequently put it on rent, will she have to declare and/or pay tax on the rental income generated in India? She will be filing Income Tax return in India and pay any tax due in India (after making deductions per Indian tax laws).

Q4. If she purchases a residential property in India and subsequently put it on rent, will she have to declare and/or pay tax on the rental income generated in India? She will be filing Income Tax return in India and pay any tax due in India (after making deductions per Indian tax laws).

Q5. Does her domicile change in the UK, if she purchases a house in the UK (on mortgage)? How does the domicile have an impact on her tax treatment?

Q6. At what income threshold does she have to declare to HMRC about the Indian assets (such as property) or NRE bank accounts in India?

Apologies if any of the question(s) is outside the scope of this forum.

AnthonyR
Posts: 268
Joined: Wed Feb 08, 2017 2:33 pm

Re: NRIs and Double Taxation between India and UK

Postby AnthonyR » Fri Mar 08, 2019 12:22 pm

First things first - this is a complex area and she shouldn't rely on info from a forum. She should take paid for professional advice (the below is a rough outline of the position - certainly not advice):

1a. IHT is charged on the estate of the deceased. So the question is whether the person they inherited from was subject to UK IHT. The UK charges IHT on worldwide assets for individuals who are UK domiciled or deemed domiciled (ie been resident in the UK for 15 of the past 20 years). However, to complicate matters there is a 1956 double tax treaty that can override this for indian domiciled individuals. However, in this case your client has no exposure to tax assuming the estate has been dealt with correctly (which is the executor's issue not your client's).

1b. UK residents are subject to CGT on worldwide assets unless they are non-domiciled and the remittance basis is claimed. This is free for the first 6 years, but comes with a charge (£30,000-£60,000) from 7-15 years and no longer possible after 15 years as the client becomes deemed domicile. Any gains sheltered under the remittance basis are taxed if they are brought into the UK.

2. Yes unless it's under £2,000 and not brought into the UK. If it's above £2,000 she can claim the remittance basis (subject to the charge) and as long as it is not brought to the UK it is not taxed. If it's brought into the UK it's taxable as normal.

3. Yes, subject to point 2 - double tax relief should apply with the tax paid in India deducted from the UK tax

4. See 3.

5. If she permanently settles in the UK this will change her domicile and she will no longer be able to claim remittance basis and will be taxable on worldwide income and gains. Buying a home doesn't necessarily mean she has settled permanently, but it is an indication of intent.

6. She will need to declare any funds brought into the UK. If income is below £2,000 and not brought into the UK then she doesn't need to declare anything. If it's £2,001 she needs to declare it all or claim the remittance basis (and pay the charge).
Anthony Rogers LLB CTA TEP
Fusion Partners LLP
anthony@fusionpartners.co.uk

vgupta876
Posts: 3
Joined: Thu Mar 07, 2019 10:06 pm

Re: NRIs and Double Taxation between India and UK

Postby vgupta876 » Fri Mar 08, 2019 1:29 pm

Thanks for the detailed response, and as correctly suggested she will be taking professional tax advice on the matters.

There are a few other questions though, if you could possibly share generic guidance:

Situation -
1. She has some income in the UK which is under the 40% tax bracket.
2. Her annual Indian income (rent, interest rates) is around £8000 however her taxable income in India is none, due to personal allowance in India and other applicable tax relief.
3. The person they will inherit money/property from will be her parents and they are citizens and residents of India only, so they are not subject to UK taxation.

Can you please advise if the below understanding is correct:

1. If Indian government give tax relief on certain income doesn't mean the same tax relief is applicable in the UK. For example:
a) Indian tax laws does not charge tax on interest earned in NRE accounts, however full 40% tax rate will have to be paid to the UK government (above the £500 worldwide allowance).
b) Indian tax law give personal allowance but that can't be claimed in the UK since she has already claimed UK personal allowance.

2. Since she has done more than 7 years, from the looks of it - claiming remittance basis will not be tax efficient and therefore arising basis will have to be taken into consideration and full income will have to be declared to HMRC and pay UK tax on:
a) Tax relief given by Indian government - interest in NRE accounts, interest on home loan, maintenance of rental property, personal tax allowance
b) and; additional tax if UK tax bracket is higher than the Indian tax bracket.

vgupta876
Posts: 3
Joined: Thu Mar 07, 2019 10:06 pm

Re: NRIs and Double Taxation between India and UK

Postby vgupta876 » Fri Mar 08, 2019 2:05 pm

Apologies, forgot to add: she does not intend to bring any of the Indian income to the UK.

AnthonyR
Posts: 268
Joined: Wed Feb 08, 2017 2:33 pm

Re: NRIs and Double Taxation between India and UK

Postby AnthonyR » Fri Mar 08, 2019 4:09 pm

1a) correct
1b) correct

2) the indian income will be added to her UK income and tax accordingly. If she pays any tax in India she will probably be able to offset this tax from the equivalent tax in the UK. If the UK tax is higher she will pay the difference. If the Indian tax is higher it's not possible to reclaim any 'overpayment'.

The fact that she is not bringing it into the UK does not change the position, it does mean that it's taxed income from a UK point of view so it's possible to bring it in later without a further tax charge (tax has already been paid).
Anthony Rogers LLB CTA TEP
Fusion Partners LLP
anthony@fusionpartners.co.uk

vcc
Posts: 2
Joined: Sat May 11, 2019 10:05 pm

Re: NRIs and Double Taxation between India and UK

Postby vcc » Sat May 11, 2019 10:44 pm

I just came across this forum while looking for information about UK taxation on foreign interest income (esp. from NRE/NRO Accounts at banks in India).

The NRE account interest is tax free in India, so the entire NRE account interest income must be declared in UK and 40% tax must be paid in UK I think.
In India, the banks will deduct the tax at source on NRO account interest income at 30% tax rate. So the 30% tax in India is lower than 40% UK tax but still one cannot just pay only 10% difference tax in UK it seems. This is based on the Double Taxation rules between India and UK, I read that, if the tax on NRO account interest income already paid in India, then it is allowed only 15% of foreign tax credit relief can be claimed in UK but not any higher. And for rental income in India there is different rules are there I think like no tax on the first £1000 and the double taxation rules etc.,

Please confirm if my understanding is correct or not on this? that is - "a UK resident need to declare to HMRC about the gross foreign interest income from Indian NRE/NRO accounts, which is taxed at 40% for higher tax bracket individual if the interest income is above £500 and then claim Foreign Tax Credit Relief of 15% on the tax amount already paid in India based on Double Taxation Treaty rules between India and UK. The remaining 15% tax already paid in India will have to be claimed from Indian Tax authorities by filing tax returns in India."

AGoodman
Posts: 767
Joined: Fri May 16, 2014 3:47 pm

Re: NRIs and Double Taxation between India and UK

Postby AGoodman » Mon May 13, 2019 11:50 am

I don't quite understand this. If NRI accounts are exempt from tax in India then the individual will presumably need to reclaim the entire 30% deducted at source in India.

They would pay UK income tax on the full amount. I don't see any ability to deduct Indian tax if they have a right to recover the full 30%.

vcc
Posts: 2
Joined: Sat May 11, 2019 10:05 pm

Re: NRIs and Double Taxation between India and UK

Postby vcc » Mon May 13, 2019 3:32 pm

Not all NRI accounts are exempt from tax in India, only NRE (non-resident external) savings/deposit accounts and FCNR deposit accounts. The other type of account is NRO (non-resident ordinary) savings/deposits, the interest income on which is taxable in India at flat 30%.

In the past banks in India used to deduct tax at source on NRO account interest at 15% based on account holder submitting a form 15G/H or similar but now a days banks are not doing that instead deducting flat 30% tax at source and asking the individual to contact Income Tax department to claim back the 15% tax only.

So the other 15% tax which was already paid to Indian tax authorities can be deducted from the UK tax bill on the amount from NRO account interest income so that no double taxation on the same interest income. This is my understanding based on what I read recently.


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