How to report Indian Mutual Fund gains in UK Self Assessment Tax return

I am a UK citizen and I also have Overseas Citizen of India (OCI) card. I hold Non resident savings Bank account in Indian Banks. I have invested in Indian Mutual Funds through this account. These Mutual Funds are meant for Indian nationals and/or non resident Indians only. My query is if I receive any profit (gain) by selling these Mutual Funds, can I treat them as capital gains in my UK self assessment tax return? Please advise.

Hi,

If you are resident in the UK at the time of the disposal, then they would be subject to UK Capital Gains Tax.

If the gain exceeds the annual exempt allowance, this gain would be declared either using the online Capital Gains Tax service or in the foreign page of the Self Assessment tax return.  

You may also be able to claim relief for tax paid in another country.

Thank you.

Please could HMRC confirm that above is applicable for Indian Mutual Funds as I understand Indian Mutual funds are "Non Reporting", therefore any income upon disposal is likely to be treated as "Global income" and will be taxed in UK according to tax tiers.

Hi
Income from non reporting funds is only taxable on the amount actually distributed to you.
If the company falls under non reporting funds then you will be taxed on whatever your highest rate of tax is.
Thankyou.
Regards. 

Thanks - still not clear. In SA106 form, overseas savings interest, dividends, pension and rental from foreign properties are all very clear. When it comes to non-reporting funds in India and CGT's that arise and taxable in India based on indexations - how is that captured in UK? as additional income (clubbed along with savings and dividends) or as capital gains (and therefore under the purview of capital gains annual exempt allowance)

hello @HMRC Admin10 I have a similar situation. My non-reporting funds do not distribute any of their earnings. So the net asset value of my units increases as time goes by. After disposing my fund holdings, I end up with a profit(a capital gain, effectively). Please could HMRC clarify whether UK capital gains allowance would apply to this profit? Or would it be considered as a simple 'foreign earning' and taxed at my highest income tax rate?

Hi,

It 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.

Thank you.

Hi,

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.  

IFM12300 - Offshore Funds: introduction: non-reporting funds

There are certain exeptions to this. Further guidance can be found here:

IFM13400 - Offshore Funds: participants in offshore funds: the charge to tax on disposal of an interest in a non-reporting fund

Thank you.

Dear Sirs, I had a mutual fund which matured in 2022. The £8000, maturity value from the disposal was placed in a non resident Indian bank account in India where it still sits. The bank has emailed me to provide a self declaration under the Indian Income Tax Act, FATCA/CRS otherwise I will be liable for any charges that are levied on them by the government. I wasn't intending to submit a tax return as I am PAYE and the amount of £8000 falls within the CGTA for 2022/23. I am unsure what I need to provide to my Indian bank to satisfy them that I have declared this income. Your guidance would be greatly appreciated.

Hi,

You would need to ask the Indian authorities what evidence they actually require.

Thank you.

Hi. I have similar queries as above re how to treat income/dividend payments made by Indian “non-reporting” mutual funds and capital gains made on the sale of such funds. The reply by HMRC Admin 19 states “If you are resident in the UK at the time of the disposal, then they would be subject to UK Capital Gains Tax.” and that the annual capital gain exempt allowance could be offset, implying that any excess gain would be taxed at the CGT rates. A subsequent response by HMRC Admin 32 also suggests (in response that “profit on sale of a fund 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 [presumably if the gains are less than the annual CGT exemption value?] will be applied”. However, HMRC Admin 32’s next response after that states “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.” This is confusing and seems to contradict HMRC Admin 19 and the initial response of HMRC Admin 32. Can this be clarified please?

The post by ANATH highlights the contradictory advice being provided by HMRC on the site. Please could this be addressed. Thank you

Hi Krisr,

The question posted was in relation to reporting / non reporting funds and Indian NRE accounts. You would therefore need to clairify which of these accounts your own Indian mutual fund falls into and follow the guidance given.

Thank you.

Post by Anath 5 months ago highlighting contradictory response by Admin 32 to same Question. Can we have clear guidance on Indian Mutual Funds . As I see most of the Indian funds do not reflect in the Reporting Funds list published by HMRC . The gains arising from them is in the nature of Capital Gains in India but will they be treated as interest income in UK on clubbing the world wide income?

Hi P B,
In generic terms, UK resident and domiciled individuals are subject to tax on their worldwide income and gains on an arising basis; this is regardless of the tax-exempt status in India. Foreign Tax Credit relief is available in respect of tax deducted at source on NRO accounts. 
Although NRE interest income is not taxable in India NRE, interest income has often been mistaken as non-taxable in the UK this is incorrect, UK tax residents are subject to UK taxation on their worldwide income and gains subject to any remittance basis claims. 
Under the UK-India Double Tax Convention, NRE account interest taxable in the UK, can receive credit for Indian tax, even if this has not been paid as the credit relief amount is calculated through the tax spared mechanism, which deems Indian tax to have been paid at the marginal rates applicable there. (UK-India DTC notes page HMRC’s Double Taxation Relief Manual DT9553). 
Under the UK-India Double Tax Convention, NRE account interest taxable in the UK can receive credit not exceeding 15% for Indian tax even if this has not been paid. 
UK tax relief not exceeding 15% is available for ten years from the opening date of the NRE account per Article 24(5) UK-India Double Tax Convention. 
NRE interest income should be declared within an in individuals UK self-assessment return. 
Thank you.

Further to my post on 25/10/2023, I am still unclear on how to treat gains and losses made on the sale of Indian “non-reporting” mutual funds. 1. I understand that: (a) such gains (which are treated as capital gains in India) are treated and taxed as income in the UK because HMRC does not treat the gains as capital gains; (b) capital losses on the sale of Indian “non-reporting” mutual funds cannot in the UK be offset against the gains on the sale of other Indian “non-reporting” mutual funds because the gains are treated as Income; (c) however, capital losses on the sale of Indian “non-reporting” mutual funds can in the UK be fully offset against any other gains treated by HMRC as capital gains. Can you please confirm whether 1 (a) to (c) is correct. 2. I understand that taxes deducted at source (TDS) in India on the gains made on the sale of Indian “non-reporting” mutual funds can be offset against the gains which taxed as income in the UK. Can you please confirm that the TDS can be claimed in the UK tax return and whether the full amount of the TDS can be claimed. Thank you.

Hi

Please refer to guidance at Offshore funds (Self Assessment helpsheet HS265)

Thank you

I have investments in non-reporting Indian Mutual Funds. Upon redemption, the Indian Govt would deduct taxes at 12.5%. I understand that this would be "Offshore Income & Gains" and I would have to report them in box 41 of SA106. I would also have to pay tax to HMRC at 20% which is my tax rate. Would I be able to claim Foreign Tax Credit Relief for the tax deducted in India? In which box/page of SA106 would I have to claim this? Would I have to fill details of this redemption in the SA100/SA106 as capital gains, besides filling box 41 to claim FTCR?

Hi ,
 

Please refer to : HS265 Offshore funds    .

Thank you .