I am an UK citizen. I opened a recurring monthly fixed deposit Indian NRE account at 9% interest for 10 years. No tax in India and repatriable.
My first question is do I have to pay tax in the UK on the interest earned and are there any legal ways to reduce that.
Secondly, what is the risk of a recurring deposit over a long period with a devaluing currency like the Indian Rupee. Does pound cost averaging work here?
I intend to buy more INR when it devalues.
My first question is do I have to pay tax in UK on the interest earned...
Yes, you must declare your world wide income. From here:
Since you are a resident in UK, you are required by UK tax regulations to show all global income on your UK tax return and claim a credit for taxes paid in India under the DTAA. According to UK tax regulations, those who live in UK permanently are normally required to pay tax on their worldwide income. Worldwide income can be income derived for example from: interest earned income, rental income. There is however a Double Tax Avoidance Agreement (DTAA) between India and UK that would give you relief from paying taxes to two countries on the same income.
You mention "no tax in India". Therefore, you don't need to worry about double tax. However, you must declare you interest income in your UK tax filings.
...is there any legal ways to reduce that?
There are many ways to legitimately reduce your tax obligations but these depend on several factors such as your current income. This article is a good starting point.
Secondly what is the risk of a recurring deposit over a long period with a devaluing currency like INR?
The problem with this is that you state that the Indian rupee is devaluing as though it is a foregone conclusion. Recently, it's been the opposite whereby the Indian Rupee has been the best performing Asian currency in the first half of 2014.
In my opinion, inflation and interest rates are more likely to go down than up in India so I would suggest locking in your money at a higher interest rate while you can.
