Investments made in India

I'd like clarity on how gains from investments in mutual funds (MFs), managed by asset management companies based in India, are treated for tax purposes. I understand that none of the Indian MFs are considered to be "reporting funds" and therefore (a) dividends paid out by the Indian MFs and capital gains made on the sale of such funds should be included as "Interest and other income from overseas savings" in one's self assessment, and these would be taxed as INCOME; and (b) capital losses on the sale of such MFs are only allowed to be offset against gains accepted by HMRC as "capital gains" (eg capital gains that may be made on sale of UK equities, property, other assets). Is this correct? If not, please can clarity be given on (a) under which category should dividends and gains from Indian MFs be reported and (b) if and how losses on disposal of such MFs can be offset against capital gains.

Hi ANATH,
Please refer to guidance at:
HS265 Offshore funds
Thank you. 

@HMRC Admin 25 - thank you for your response. I have read the guidance note you refer to but continue to be unclear regarding the aspects covered by my questions. I am not seeking advice and would be very grateful if you could provide responses to the specific questions I have asked.

Hi,
 

Approved reporting funds are taxed differently to unnaproved non reporting funds.  Where the mutual funds is approved, the liabilty on items such as intrest and dividends are subject to income tax and disposals subject to capital gains tax.  For unnapproved non reporting funds, they are subject to income tax on disposals, instead of capital gains tax.  Losses from both approved and unapproved funds can both be claimed as losses . Thank you.

@HMRC Admin 17 - thank you for your response which is VERY clear and helpful. To help avoid confusion and mis-reporting, it may be worth HMRC revising its response to another thread of a blog: How to report Indian Mutual Fund gains in UK Self Assessment Tax return - Community Forum - GOV.UK (hmrc.gov.uk). I was seeking clarity on that thread as the response by @HMRC Admin 32 to @ThreeLion states that “It [a profit/capital gain on disposal of non-reporting funds] will be declared as Capital Gains. As you will also need to show this on the Capital Gains page, this will then be covered by the annual allowance so no extra charge will be applied.” In the same thread, an earlier response by HMRC Admin 19 also states that gains on disposal of mutual funds “would be subject to UK Capital Gains Tax”. These response are in contradiction with your (HMRC Admin 17) response in this thread.

Hi ANATH,
The replies you refer to are for reporting funds and non reporting funds which have different tax status.
The main effect for UK investors who have invested in non-reporting funds, as opposed to reporting funds, is that on disposal of their interests they will be liable to tax on any gain arising as if it were income (that is, an offshore income gain, or ‘OIG’) instead of as a capital gain.
There are certain exceptions to this - see IFM13400 onwards. 
Thank you.

OK thank you for the clarification.

1. What will be the tax treatment for long term capital gains out of Investments made into Portfolio Management Services (PMS) managed by Asset Management Companies in India by a non-domiciled UK citizen as per recent Spring Budget announcement? (For your reference, the same portfolio investment is NOT listed under the list of "reporting funds" on HMRC website) 2. If the same person invests into Direct Equity Shares in Indian Markets, what would be the tax treatement on gains arising out of such Direct Equity Investments as per proposed tax regime?

Hi,

The calculation of Capital Gains Tax remains unchanged. The rules for non domiciled individuals have changed from 6 Aprl 2025, abolishing the remittance basis of tax and replaces it with a simpler residence based regime. The transitional arrangements are: 

• an option to rebase the value of capital assets to 5 April 2019
• a temporary 50% exemption for the taxation of foreign income for the first year
• a two-year Temporary Repatriation Facility to bring previously accrued foreign income and gains into the UK at a 12% rate of tax.

You can see guidance here:

Technical note: Changes to the taxation of non-UK domiciled individuals

Thank you.