The reason for this article is that I believe this is
an important area of interest to all Indians living in
the UK and holding some kind of assets in India. There are a lot of
enquires, and people get confused and they panic about the
subject. So I thought it is good idea to clarify the points of
this matter.
Many Indians live in the UK and still believe
they should not pay any tax on the income or assets held
in India. They think they have paid tax on their UK income and
it has nothing to do with their Indian assets or income. This is
wrong, because they are avoiding UK tax and that leads to penalties
and later a big tax bill.
As for the tax laws of UK concerned, world wide income
is taxable for the UKtax resident.
Tax residency should not be confused with your residential or
passport status.Even if you are Indian passport holder and/or a student in
the UK, you are still a tax resident in the UK.
While you are filing a tax return or declaring income in
the UK, it is your responsibility as a UK tax payer to disclose
your world wide income. If you are domiciled in UK, you have to pay
tax on your worldwide income, whether or not it has been remitted or
not. But if you are a non-domiciled in the UK, you can opt for a
remittance basis. In that case, you need to pay a fixed tax payment on the
basis of the number of years of residency in the UK.
I believe this tax rules will affect all Indians
living in the UK, who have some kind of assets or income
in India. It will affect even property inherited from parents or a
share of family property.
Considering the laws in two countries, it is very complex
subject unless you planned in right way.
If you buy a house, property or land in India and
subsequently you sell it, you need to pay tax in India as well as tax in
the UK. Even though this property is inherited from your parents, you
still need to pay tax in India as well as in the UK.However
you could claim ‘foreign tax credit relief’ whilst
computing their UK tax liability.
Many residents in UK still think they are not required
to pay tax in either place and are being wrongly advised, and finally end up
with more tax liability.
This article is specially targeted at Indians who have
settled in the UK, US or other countries and having assets
in India.The assets may be owned out of the investment from overseas
income or inherited from their parents. We will analyse below these two in
a separate way.
1.
NRI’s acquired assets out of NRI saving and living in
the UK
Tax payable in India
They are liable to income tax or short-term or long-term capital
gains tax subject to the nature of business
The land they bought as agricultural land will be exempt from
capital gains tax and income tax in India. However, in the case of
house properties and other assets, they are subject to income tax and short- or
long-term capital gains tax.
The buyer needs to deduct the withholding tax, and he can
transfer up to £ 1 million US dollars to the UK. For any
amount more than that, he is required to obtain
prior RBI permission. Otherwise, he needs to open
an NRO account and repatriate only the cost of investment and the remaining
amount can be repatriated after paying the appropriate tax
in India. Any transaction over 3
million Indian Rupees needs to be informed by the registrar to the
local income authority, and subsequently they can be investigated.
Tax payable in the UK
The person needs to pay tax, either income tax or capital gain
tax, depending on the cases. But they are eligible to apply for double
taxation exemption and claim back that tax credit.
But in the case of a non-domiciled UK resident, they
can opt for the remittance basis. Many Indians can claim for
non-domiciled status .But if they are domiciled in the UK, even though
they are in Indian, they need to pay tax on world wide income, whether it is
income tax or capital gains tax.. They are not able to pay tax on a
remittance basis, but they need to pay tax on an accrual basis of income.
2. NRI’s acquired assets by inheritance from parents
in India or their family share of property and assets in India
This is a very typical situation of Indians living in
the UK with their parents living in India who are tax resident
in India.
While parents have passed on their assets to their children, but
if they are UK resident, they are taxable for the capital gains tax,
while they are selling this property in India. We can analysis the
tax treatment of both the countries, as follows:
Tax payable in India
The assets, land, property or any other assets in India are
subject to profit or capital gains tax. This will happen at the time of
selling the inherited property in India.
If the property is agricultural land it is exempt from capital
gains tax and income tax.
But if the property is situated in a municipal area, it is not
exempt from income tax or capital gain tax.
There are two ways the Indian tax can be paid:
In the first method, Indian tax can be withheld by the
buyer and the balance amount remitted to the UK up to an annual limit
of one million US dollars. For any amount higher than that,
prior RBI permission is required. The buyer withholds the tax,
and pays the tax authority, and NRI will get tax clearance
certificate prior to remitting the amount to the UK.
The second method is that NRI need to open
a NRO account and transfer all the sale proceeds to that
account. They need to pay the tax from that account. After paying the
local tax the clearance certificate is required to remit up to one
million US dollars, and they can even pay more with the prior
permission of RBI.
If they want to invest in similar properties in India out
of the sale proceeds they will be exempt from Indian tax, but they still
need to pay UK tax
Tax payable in the UK
The tax payer in the UK needs to pay income tax or
capital gains tax depending on the nature of the Indian income. But
they can claim double taxation relief on tax they have already paid for the
same income in India. But in the case of non-domicled residents, they
can opt for a remittance basis, but they need to pay fixed fees up to £50,000,
depending on the individual case.
But in the case of a domiciled person in the UK, they need
to pay tax on an accrual basis of income. This means they need to pay tax,
whether remitted to the UK or not remitted to the UK
By applying non-domicile status, they need to state separately
in their tax return that their status is non-domiciled.
Other Business Income or profit in India
Tax payable in India
The same principle is applied to other business and income and
it depends on the domiciled status. There is a way to postpone Indian
income tax by reinvesting the sales proceeds.
Tax payable in the UK
They need to pay tax in the UK and they can claim
double taxation tax relief
Parents cash gift from India
Tax payable in India
Any gift more than RS.50, 000 is taxable in the hand of the
person receiving the gift, even if this is to a person non resident
in India, they are taxable, even if the property is given as a gift to
children, the same principle is applied. Sales at lower price than market
value will be treated as a gift.
Tax payable in the UK
Cash gifts from non-resident parents are not taxable and this
exempt from tax.
Who needs to file tax return in
the UK?
- If you are self-employed
- Company directors,
- Ministers of religion
- £10,000 or more income from saving and investments
- £2500 or more untaxed saving and investments
- £10,000 or more income from property before deducting allowable expenses
- £2500 or more income from property after deducting allowable expenses
- If your annual income is more than £ 100,000
- If you are employed and want claim for expenses or professional subscriptions of £ 2500 or more
- You have capital gain tax to pay
- You are living or working abroad or not domiciled in the UK
- If you are trustee
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