Sometimes people buy property in their home country and sell it after a few years when the value increases, sometimes people inherit property and want to sell it and bring the funds to the UK but are a bit confused about what tax they will have to pay if they get the money here or even if they send some money to their home country from here.

On today’s show I had the pleasure of talking to Mr Mahendra Pattni who is a very experienced chartered accountant about taxation in general with regards to proceeds from sale of property, and also repatriation of money. He said that repatriation of money basically means that you want to bring money from any particular country to another country.

He explained the difference between an NRO and an NRE account in India. An NRO account is a non-resident ordinary account which is held in Indian Rupees and can be used when visiting India, as it’s easier to do so. An NRE account is the non-resident external account which is also held in Rupees but the main difference is that you can transfer money from another country into the NRE account but cannot transfer into an NRO account. Mr Pattni said that it’s generally easier to make transfers using an NRE account.

If someone has sold a property in India and made a profit while doing so then that person will have to first pay the capital gains tax in India according to the Indian Taxation rules. Whatever the sale proceeds are from the property you can deduct the amount that you paid for it when you purchased it, also you can deduct the amount spent in making any improvements to the property. He said that there is also an indexation gain which means that, say you bought the property 10 years ago and in the 10 years there is a lot of inflation, there is also an allowance for that, after deducting all these costs from your sale proceeds whatever is remaining you pay tax in India on it. Once the Indian tax is paid and the money is deposited into the NRE account and you want to bring it to the UK, it will depend on your tax status in this country if you need to pay tax or not. If you are a tax paying resident but not domiciled in the UK then there are two ways in which you can decide to get taxed.

Domicile means that you are coming from a foreign country and you still have a non UK domicile which you acquire from your father after your birth, you can opt to be non-domiciled in the UK for tax purposes, if you do that then you can get taxed in two ways

The first way of getting taxed is on Remittance Basis where there is a flat rate of tax which is at two levels

  • If you have been in this country for 7 years out of the last 9 then there is a flat rate tax of £30,000
  • If you have been in this country for more than 12 years out of the last 15 then you need to pay £50,000 flat rate tax

If you select this option of getting taxed then there is no limit to the amount of money that you can bring into the UK once you have paid the flat rate tax. But there is a limit to the amount that you can transfer out of India in one financial year. You can transfer a maximum of 1 million USD during a single financial which is from April to March  using an NRE account providing you have paid your taxes in India, additionally you also need a certificate from a Chartered accountant in India to Reserve Bank of India for you to be able to transfer the money over. And once all this has been done there is no paperwork that needs to be submitted in the UK with regards to the money transferred according to Mr Pattni

According to the latest budget there is a possibility that the rules may change by 2017, they may abolish the remittance basis for people who have been here for more than 15 years. Then they will get taxed on their worldwide income.

The second way of getting taxed for non-domiciled tax paying residents is based on your worldwide income. If you have made a capital gain in India then you have you declare that gain and you will be taxed according to whatever the amount is whether you bring that money in the UK or not.

He also spoke about the double taxation treaty between India and the UK , there is an understanding where in certain situations whatever tax you pay in the UK, in India you get the relief for the tax paid and vice versa. For example if you sell the property in India and you have paid 20% tax and the money is brought into the UK, under the worldwide scheme the taxation rate is 28% you would get relief for whatever you paid in India so you would need to only pay the balance in the UK. He said that it is a bit complicated and each individual situation is different and he suggests its best to get expert advice.

He said that if a person is getting taxed in the UK then they have to declare any income that they have in their home country like interest received into an account in India even if the money is not brought to the UK and kept in India itself. People need to fill out a self-assessment form and inform the HMRC about the new source of income. But he also said that there is an exemption limit on interest under £2000.