I am an Indian citizen (Indian domiciled via father's citizenship) currently residing in the UK. I intend to take up permanent residency in the UK when applicable but also continue to use my Indian NRE Account.

I intend to create regular term deposits (fixed deposits) in my NRE Account since the interest rates are higher in India (~7%) vs UK(~1%).

If I were to repatriate this amount back to the UK (both principal and interest), would I need to pay taxes on this in the UK ? Currently my bank already pays TDS on the interest gained on the term deposits.

My current idea is to use the Indian interest rates to offset the UK loan payments (mortgage etc.) on the long term; i.e better to invest in Indian FDs than overpaying mortgage/loans.

While the UK Loan rate of interest is 2%, the Indian FD interest rate is 7%.

Even if I were to pay the higher tax rate of 40% in the UK, this computes to a 4.2% interest rate in India (100%-40% tax x 7% interest).

Would anyone be able to comment on

1) If my interest earned in India is taxable in the UK? (I am a UK Resident but an domiciled Indian)

2.a) If I DONT repatriate the funds to UK- Would I have to pay tax in the UK on interest earned in India if I were to take up a permanent residency in UK?

2.a) If I DO repatriate the funds to UK- Would I have to pay tax in the UK on interest earned in India if I were to take up a permanent residency in UK?

3) Ignoring currency fluctuations, would this plan be considered feasible / financially sound?

  • On a long term basis, the difference in interest rate results in the devaluation in FX rate. There can be some arbitrage opportunity positive or negative.
    – Dheer
    Dec 28, 2018 at 13:05

1 Answer 1


Once you are domiciled and resident in the UK, you pay tax in the UK on all income including interest earned abroad.

So whether you remit money to the UK is, AIUI, only relevant if you are not domiciled in the UK.

As I understand it (and I know little about residency), that you haven't reached the threshold for permanent residence doesn't imply that you aren't considered domiciled here: that's a judgement you and the tax authorities make based on your individual circumstances and plans.

Is this plan sound? If you're only considering this in place of overpaying a mortgage — so this is not interest-only mortgage and you are able to pay off the UK debt even if you were never to repatriate the extra money from India — then the plan isn't unsafe.

Is the plan good? I think you can't really say "ignoring currency fluctuations" — you're engaging in interest rate arbitrage between currencies. The main risks are currency fluctuations and foreign exchange controls. If you assume that markets are efficient and the higher interest rate in India will be cancelled out by currency depreciation, then the plan isn't profitable, and if you would rather not bet on currency movements either way, paying down a mortgage is the safe choice. But if you want to diversify between the UK and India then the plan is okay — just be aware that it's possible to be unable to repatriate assets at the time of your choice at a reasonable rate (hence my comment above about being able to pay the mortgage even without the money from India).

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