Profit from Indian Mutual funds

I am a UK citizen and I also have Overseas Citizen of India (OCI) card. I hold Non resident savings Bank account in Indian Bank. I have invested in Indian Mutual Funds (each mutual fund contains portfolio of multiple equity shares) through this account. These Mutual Funds are meant for Indian nationals and/or non resident Indians only. To clarify, I won't be getting any income or dividend in between. Only gain I get is if there is an increase in NAV value between buy and sell. My query is if I receive any profit (gain) by selling these Mutual Funds, do I need to treat it as capital gains or as income in my UK self assessment tax return? Please note that I am not looking to move these gains into UK as yet. Do I still need to report it? Based on some of the previous queries in the forum, looks like Indian mutual funds are treated as offshore non-reporting funds. But I see there were conflicting answers from HMRC in the forum on how to report these gains (i.e. some answered as capital gains whereas some suggested to report as income). What should be the right course of action? Appreciate your clarification. Thanks and regards

Hi,

Approved mutual funds are taxed differently to unapproved mutual funds. You will need to find out which you have. You should check with the mutual fund provider.  

Approved mutual funds will be liable to UK Income Tax on interest, coupons and dividends and Capital Gains Tax on disposal.  

The disposal of  non reporting funds is treated as 'offshore income gains' and are subject to Income Tax and not Capital Gains Tax.

Thank you.

Thanks for the response. Looking at your reply, it seems these are non reporting funds. While completing 'Foreign income' section under 'Foreign income details (Page 1 of 2)', there is a question as below. I have two questions. 1) For example if we decide to re-invest all the gains from mutual funds within India without remittance into UK bank account. In that scenario, do we need to still chose option 'NO' in the below question and report the gains even though they were not moved into UK ? To test, I tried the option 'Yes - all' in which case it says that there is no need to report that income. Please advise how we should proceed? Were you unable to transfer some or all of your overseas income to the UK? - No - Yes - some - Yes - all 2) In India tax is deducted at source for all the gains on mutual funds (there it is treated as long term gains), Is it possible to claim the tax relief for this? If yes, where should I enter these details as I couldn't figure it out ?

Hi diwtad

Please refer to guidance at Paying tax on the remittance basis (Self Assessment helpsheet HS264)

Thank you

Thanks for the reply. But the link provided by you says 'Find out about paying tax on the remittance basis if you're a UK resident who has foreign income and gains but do not live in the UK'. In my case I am UK resident but invested in India. I got some gains in Mutual funds which I am going to revest without moving those gains into UK bank account. Please advise how I should report this income as per the details given in my previous post?

Hi diwtad 

If you are UK resident and domicile you need to report you worldwide income. Therefore any gains need to be reported whether reinvested or not.

Thank you

 

Thanks for the reply. I pay capital gain tax for the gains in India. Can I re-claim that while completing self assessment in UK ? If yes, where can I enter as I don't see an option in self assessment. Thanks in advance.

Hi,

Capital gains are declared on SA108 and also on SA106, foreign tax was paid and you want to claim a foreign tax credit.  With the online tax return, you select the capital gains option and the foreign option when tailoring your tax return.

Thank you.

Hi. Further to #diwtad query, gains on disposals of non reporting funds are treated as 'offshore income gains' and are subject to Income Tax. I understand that I would need to enter the gross gain in the "Other overseas income and gains" box/page within the the SA106 self assmt form. Can you please advise where in the SA106 self assmt section I can enter the FTCR related to such gains. As far as I can tell, there is no box on that "Other overseas income and gains" page. Or should I enter the gain net of the FTCR and provide details in the "Any other information (Page 2 of 2)" page?

Hi,
Non reporting funds are treated as 'offshore income gains' and are subject to income tax and not Capital Gains Tax. The gains should be entered in box 41 of SA106 and in the box marked "Other overseas income and gains" on the online return. Any FTCR should be entered at box 2.
Thank you.

Hi HMRC Admin, thanks for the clarification. Can you please advise where to find 'Maximum foreign tax credit relief percentage allowed' while working out FTCR ? I need to know this for income from India 1) Foreign bank interest 2) Offshore income gains on non-reporting funds. Appreciate your help. Thanks

Hi,
Please have a look at the tax treaties for the UK and India (Tax treaties).  With bank interest, you can claim up to 100% of the foreign tax paid.  Please have a look at: Article 11 – Dividends.  For an individual, the relief is limited to 15%.
Thank you.

Thank you for the response. In our case I made a profit when I sold my Indian mutual funds (non-reporting funds). Can I treat this income as Dividend income? in which case I believe tax relief is limited to 15%. Please confirm. Thanks in advance.

Hi
Gains from Indian Mutual Funds at taxable as capital gains and are declared in a self assessment tax return on SA106 or the foreign section of the online tax return.  Please have a look at the guidance on offshore funds at HS265 Offshore funds

Thanks. But if you look at few earlier responses from HMRC Admins, it was confirmed that Indian mutual funds will be treated as non-reporting funds and any gains will be treated as income and not as capital gains. If that is true, how much FTCR maximum I can claim for foreign tax paid ? Please advise. Thanks in advance.