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.

This is the big one for British Indians with mutual fund portfolios. Under Article 13 of the India-UK DTAA, capital gains on shares are taxable only in the country of residence. You live in the UK. That means India should not be taxing your equity mutual fund gains at all.

Yet your AMC still deducts 12.5% LTCG TDS when you redeem. Why? Because AMCs apply default rates unless you submit DTAA paperwork. They're not going to check your treaty for you.

So what do you do? Get your HMRC TRC (apply via Government Gateway, free, 6-8 weeks). File Form 10F on India's portal. Submit both to your AMC for future exemptions. File ITR claiming Article 13, and your 12.5% TDS comes back as a refund.

Yes, the UK will tax those gains under CGT. But you get your annual CGT allowance (£3,000 from April 2024), and rates are 18-24% only on the excess. India's 12.5% default TDS is money you can recover fully. Every rupee.

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), 15% on dividends (vs 20% default), and that powerful Article 13 exemption on equity gains. Properly structured, a British Indian with ₹20 lakh in Indian investments saves ₹35,000-50,000 per year on the India side alone.

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.