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?