Tax Implications of money received from India to UK from family or Investor
World has become a global village and it is not rare to see families now a days span throughout the world. About 1.4 million Indians reside in UK and most of them still hold active connection to home back in India.
Irrespective of their reasons for staying in UK, the one common thing between most of the Indians residing in UK is foreign remittance. Online money transactions has never been easy and the easy of transferring money has come to the fingertips of the people. With the technical surge and clarity on the remittance rule, various ways have come to the surface with which money transfer across countries almost feel like a local transaction and money deposit happens in almost no-time.
Although money transfer from India to UK or vise-versa is a breeze now days, it comes with its own set of rules and restrictions that needs attention. Your residence status plays an important factor from UK tax implications perspective on foreign remittance.
If you are a person staying in UK and already getting remittance from India or expecting future remittance then below FAQs would be helpful.
Who is considered as UK resident?
- Your length of stay in UK as a direct effect on your UK residence status.
- To be considered as a UK resident you have to spend at least 183 days in one financial year or you have lived in a rented or owned home in UK only and have stayed there for at least 30 days in a financial year or Worked sufficient hours*(refer SRT test) in the UK
Can a person staying in UK (either permanent residence or student or skilled worker on temporary work period) receive money from India?
- Yes, online transaction from Indian bank to any bank account in UK is possible.
Is there any limit for the amount of remittance that can be done?
- Yes, as per the (Reserve Bank Of India) RBI’s (Liberalised Remittance Scheme) LRS, any Indian resident can transfer up to 250,000 USD or equivalent amount in a financial year (April — March).
What are the various methods of remittance?
- Money transfer is possible via below few ways
(1) Bank to Bank transfer
(2) Money transfer via demand draft
(3) Online money transfer
(4) International money order
What are the various purposes under remittance can happen?
- Money transfer may happen for below purposes
(1) Education expenses
(2) Medical treatment expenses
(3) House maintenance expenses
(4) Gift
(5) Investment
(6) Travel expenses
What are the tax implications for money remittance from India to Uk?
- LRS (Liberalised Remittance Scheme) clearly states the rule that there will be no TCS tax on the money transfer done up to Rs.700,000/-. However, money transfer done beyond Rs. 700,000/- will incur a TCS tax of 5%.
- Person (who is remitting) can take tax credit of TCS and set off against tax liability while filling tax return in India
- Money transfer done for education expenses which is financed through a loan, a TCS tax of 0.5% on transfer above Rs.700,000 is applicable.
What is TCS?
- As the name implies, TCS is ‘Tax collected at source’, a type of tax that is applicable for the amount remitted abroad. It was introduced as Finance Act 2020 under the Liberalised Remittance Scheme (LRS).and is effective as of 1st October 2020. It is applicable on money transfer beyond Rs.700,000/- irrespective of the purpose for money transfer.
Do I have to pay any tax in UK for the money received from India?
- HMRC don’t levy any tax for the money received from family as gift or maintenance and that is been utilized for personal expenses. Any additional income generated out of that money (e.g. interest earned on investing that money or profit earned from other investment) is considered as taxable income.
- Please note there is different case if you are repatriating your own bank account fund from India to UK. In that case, you will be asked to fill form by sender Bank in India or sometime 15CA/CB depend upon type of bank account (NRE / NRO) and nature of transactions, to make sure incomes are disclosed if any. Similarly in UK, HMRC has self-assessment to show income if the proceeds related to capital gain, pension redemption, bank interest savings. You are allowed to take tax credit in UK if any paid in India subject to DTA agreement between countries.
Do I need to pay any tax on the money received as a gift or medical treatment from my parents?
- Gift as money received in cash or money received for the purpose of medical treatment falls under personal expenses and hence it is treated as non-taxable. However, you may be liable to pay tax on any income generated out of the received amount.
Do I need to pay any tax on money received from parents staying in India for Education fees?
- No. Money remitted for the purpose of educational fees not taxed in the UK.
Do I need to declare the money received from parents while submitting the self-assessment form in the UK?
- Self-assessment in UK is done by working professionals to access income tax liability for the income earned in that financial year. Money received in cash as a gift from parents staying in India or abroad need not to be mentioned during self-assessment.
However, if you inherit income or property and the person from whom you inherit expires within the 7 years from the date on inheritance then you have to pay inheritance tax and that needs to be mentioned in self-assessment.
What is inheritance tax?
- Inheritance tax is a tax applicable on the property or money that you inherit.
- Inheritance tax is applicable only when the monetary gain you inherit in the form of property or money and if the demise happens of the person from whom you inherited within 7 years from the date of inheritance. If the value of the estate is below £325,000 threshold, there is no inheritance tax applicable but in any case it is required to notify HMRC about the inheritance. Inheritance tax of 40% is applicable for the monetary gain beyond the threshold limit.
- Inheritance tax is not applicable in India however, for any income earned out of selling the inherited property is considered taxable and tax is applicable in both India and UK.
Can my parents/relatives invest in the UK property market while they are staying in India?
- Legal process in place to allow Indians or NRIs to buy a property in UK.
What are the tax implications after buying a property in UK?
- Buying a property in UK requires to pay various taxes as below.
(1) Stamp duty tax
(2) Income tax
(3) Council tax
(4) Capital gain tax
Can my parents/relatives invest in shares/bonds in UK while they are staying in India?
- Investment in Shares/bonds in UK is possible by Indians staying in India and UK taxes are applicable such as Income tax and capital gain tax.
Tax matters related to money transfer or property inheritance or income gain on investments from the amount remitted from India can get bit cluttered. Please get in touch with our expert team at GoTaxfile UK team to get unclutter view of tax matters.
Disclaimer:
The information contained in this article is for general information purposes only and does not constitute legal advice, Whilst we endeavor to keep the information up-to-date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability for a particular purpose. We recommend that professional advise should be taken from a suitably qualified expert before undertaking any action.
