British Indians: HMRC Knows About Your FDs. Here's What to Do.

For decades, British Indians relied on the remittance basis. Keep your Indian income offshore, don't bring it into the UK, and HMRC didn't care. NRE FD interest? Invisible to the taxman.

That era ended in April 2025. The UK replaced the remittance basis with the Foreign Income and Gains (FIG) regime. Under FIG, new arrivals get a 4-year exemption. After that, worldwide income is taxable, whether you remit it or not.

If you've been in the UK longer than 4 years, your NRE FD interest is now reportable to HMRC. Your NRO interest always was, but most people ignored it. That's no longer safe.

India and the UK share financial data under the Common Reporting Standard (CRS). Your Indian bank reports your account balances and interest to Indian authorities, who share it with HMRC. It's automatic. No request needed. If you're earning ₹1.5 lakh in FD interest and not declaring it on your Self Assessment, HMRC already has the number.

British Indians across London, Birmingham, and Leicester have been receiving “nudge letters” from HMRC since late 2024. These letters say, in bureaucratic politeness: we think you have undisclosed foreign income.

Ignore it and the penalty escalates. HMRC's penalty for deliberate non-disclosure of offshore income is up to 150% of the tax owed. On £5,000 of unreported Indian interest, that's £7,500 in penalties on top of the tax itself. For “prompted but non-deliberate” cases, penalties range from 15-30%. But respond too late and HMRC reclassifies your case as deliberate.

The fix is straightforward: disclose proactively under HMRC's worldwide disclosure facility. Penalties drop to 0-10% for unprompted disclosures. And here's the kicker, much of the Indian TDS you've already paid counts as a credit against your UK tax. You may owe HMRC far less than you think once the Foreign Tax Credit is applied.

But you need to act before the nudge letter arrives. Once HMRC prompts you, you lose the favorable penalty band.

Important correction: under Article 14 of the India-UK DTAA (capital gains article), India RETAINS the right to tax capital gains on shares of Indian companies. Your AMC's 12.5% LTCG TDS on Indian equity MF redemption is correct, NOT over-withholding to recover. UK residents pay India's LTCG and then claim Foreign Tax Credit on the SA106 foreign pages of UK Self Assessment to avoid double taxation.

The DTAA recovery for UK NRIs is on Indian INTEREST (Article 12, 15% cap vs 30% default) and individual portfolio DIVIDENDS (Article 11, 10% general cap vs 20% default. The 15% sub-rate applies only to property-vehicle / REIT-style dividends). Equity capital gains are not the recovery story.

Workflow for UK NRIs: get your HMRC TRC (Government Gateway, free, 6-8 weeks). File Form 10F (or Form 41 from FY 2026-27) on India's portal. Submit both to your Indian bank and AMC so future interest and dividend credits are taxed at the lower treaty rates. On the UK side, declare the equity gains on SA106 and claim FTC for the Indian 12.5% LTCG paid.

UK CGT on the same equity gain: post-30 October 2024, the residential-CGT-aligned rates are 18-24%; the annual CGT allowance is £3,000 from April 2024. The Indian 12.5% credits against the UK liability, leaving only the residual UK delta.

The Common Reporting Standard means Indian banks send your account data to Indian authorities, who forward it to HMRC. Separately, HMRC shares UK data with India. It's a two-way street.

What gets shared: account balances, interest earned, dividends received, and gross proceeds from asset sales. Not line-by-line transactions, but enough for both tax authorities to see whether your declared income matches reality.

For British Indians, this means you can't play one side against the other. Declare in both countries. Claim DTAA to avoid double taxation. Use Foreign Tax Credit on your UK Self Assessment for Indian TDS paid.

The India-UK DTAA gives you 15% on FD interest (vs 30% default) and 10% on ordinary dividends (vs 20% default). Equity capital gains are taxable in India, with FTC available in the UK. Properly structured, a British Indian with ₹20 lakh in Indian investments saves ₹30,000-45,000 per year on the India side alone through the interest and dividend rates.

That money's yours. HMRC knowing about your accounts isn't a threat, it's a reason to get your paperwork right on both sides.