For many NRIs living in the UK, managing money between two tax systems — India and the UK — can be confusing. From rental income in India to money gifted by parents, these transactions may seem simple at first, but if you’re a UK tax resident, the tax rules here are more far-reaching than you think.
This blog walks you through three common myths and mistakes we often see at Zenify Consultancy Services — and how to avoid them with clarity and compliance.
Three NRI Money Myths in the UK
Mistake 1: “I’ve already paid tax in India, so I don’t need to declare it in the UK”
The misunderstanding:
Many NRIs assume that once income (like rent, dividends, or interest) is taxed in India, it’s done and dusted — especially if it’s left untouched in an Indian account.
The truth:
If you’re a UK tax resident, you are taxed on your worldwide income — not just what you earn in the UK. It doesn’t matter whether you bring the money into the UK or not.
For example:
• You earned ₹5 lakhs in rental income in India in FY 2024–25.
• You paid Indian tax on it, and the money remains in your NRO account.
• Since you’re a UK resident, this ₹5 lakhs must still be declared in your UK tax return, and you can claim Foreign Tax Credit Relief (FTCR) for the tax paid in India.
Key point:
What matters to HMRC is where you live, not where you earned. Always disclose Indian income and claim appropriate relief under the UK–India Double Tax Avoidance Agreement (DTAA).
Mistake 2: Misunderstanding the FIG Regime (Effective April 2025)
The misunderstanding:
“From April 2025, the UK will newly start taxing foreign income for the first time.”
The truth:
UK residents have always been taxed on their worldwide income by default. What’s changing from 6 April 2025 is that the remittance basis (an optional scheme for non-domiciled individuals) will be abolished and replaced with the Foreign Income and Gains (FIG) regime.
Here’s a breakdown:
Before April 2025:
• Non-doms could claim remittance basis (only pay tax if foreign income is brought into the UK)
After April 2025:
• Remittance basis ends. Instead, new UK arrivals may claim FIG relief
• For 4 years, foreign income/gains are tax-exempt – even if remitted (if FIG conditions met)
Who qualifies for FIG?
If you become a UK resident after being non-UK resident for the past 10 consecutive years, you may claim FIG for 4 years from the date of UK residency. This must be claimed in your tax return — it’s not automatic.
For example:
• You moved to the UK in July 2025.
• You were outside the UK for the past 10 years.
• You may be eligible for FIG relief until April 2029.
Tip:
If you’ve moved to the UK recently, check your eligibility now. Claiming FIG on time can save substantial tax — especially if you have rental or investment income from India.
Mistake 3: Not Keeping Documentation to Prove Source of Funds
The misunderstanding:
“Once I transfer money to the UK, no one’s going to ask where it came from.”
The truth:
HMRC can question any large or regular remittance, especially if your tax returns don’t support the source. If you can’t prove that the money is clean capital or already-taxed income, HMRC may treat it as undeclared income, which could trigger penalties and backdated tax.
Documents you should retain:
• Gift Deed – if funds are gifts from parents or relatives
• Sale Deed + Indian ITR – if money comes from property/investment sale
• Bank Transfer Proof (FIRC) – remittance certificate from your Indian bank
• Loan Agreement – if funds are borrowed
• Past tax returns – showing the income was already taxed
For example:
You bring ₹50 lakhs to the UK in 2026 and deposit it into your UK bank account. You say it was from a flat sold in Mumbai in 2025. But if HMRC enquires and you can’t provide the sale deed, ITR with capital gains reported, and remittance certificate — they may question it as unreported income.
Tip:
Maintain records for at least 6 years. This includes both Indian and UK paperwork. Better documentation = less stress during any scrutiny.
Key Takeaways
The three most common UK tax mistakes NRIs make are:
1. Not declaring Indian income just because tax was already paid in India.
2. Failing to understand FIG regime, missing out on major reliefs, or not planning ahead.
3. Sending money to the UK without clear documentation, leading to unnecessary risk of HMRC investigation.
Frequently Asked Questions for NRIs in the UK
Yes, if you are a UK tax resident. This includes salary, rent, dividends, interest, or any other income from India. However, you can claim credit for tax paid in India under the Double Taxation Agreement.
If the money is from your own past savings or already-taxed income, the remittance itself is not taxable. But the underlying income must have been declared in your UK tax return.
FIG replaces the remittance basis. If you’re a new UK resident and were non-UK resident for the past 10 years, you can claim 4 years of tax-free foreign income and gains — even if you bring them to the UK.
While gifts from parents are not taxable in the UK, you must maintain a gift deed and bank proof. HMRC may ask for this documentation to verify the source.
• Bank remittance certificate (FIRC)
• Gift deed (if applicable)
• Property sale agreement + Indian tax return
• Proof of original savings or investment
• Any loan agreements if money is borrowed
HMRC may raise a tax enquiry, charge backdated tax with interest, and impose penalties. Indian banks now share account and transaction data with UK authorities under the OECD Common Reporting Standard (CRS).
Conclusion
Being an NRI in the UK means you are answerable to both Indian and UK tax systems. While it’s easy to assume “what’s taxed in India stays in India,” the UK’s global tax regime doesn’t work that way. With proper disclosure, understanding of rules like FIG, and a strong paper trail, you can remain compliant and avoid costly mistakes.
Maximize Your NRI Tax Savings Today
If you need help with your India tax filing as an NRI, connect with
Zenify Consultancy Services.
