I have accounts in India and the UK. Similarly, a friend has an account in each country. If I am in need of some money in GBP, I could receive money in my UK account from my friend's UK account. I would then transfer the equivalent amount in INR from my Indian account to his Indian account.

Is this legal? If so, is there a cap on how much money can be transferred this way? Which taxes may be involved in such a transaction?

2 Answers 2


Disclaimer: it's hard to be definitive as there may be some law or tax rule I'm not aware of.

From a UK perspective, this should be perfectly legal. If it's just a one-off or occasional thing for personal reasons, rather than being done in the course of a business, there probably aren't any tax implications.

In theory if there's an identifiable profit from the transaction, e.g. because you originally obtained the INR at a lower exchange rate, then you might be liable to capital gains tax. However this is only payable above approximately £10K capital gains (see http://www.hmrc.gov.uk/rates/cgt.htm) so unless this is a very large transaction or you have other gains in the tax year, you don't need to worry about that.

I would only recommend doing this if you trust each other. If one side transfers the money and the other doesn't, the international nature will make it quite hard in practice to enforce the agreement legally, even though I think that in theory it should be possible.

If the sums involved are large, you may find that the transaction is automatically reported to the authorities by your bank under money laundering regulations, or they may want documentation of the source of the funds/reason for the transaction. This doesn't automatically mean you'll have a problem, but the transaction may receive some scrutiny. I think that reporting typically kicks in when several thousand pounds are involved.


I can't answer from the Indian side but on the UK side, if you and your friend are not related then there is no tax implication - you are effectively giving each other gifts - other than a possible inheritance tax liability if one of you dies within 7 years of the transfer and has an estate above the IHT allowance.

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    I don't agree this would count as a gift for IHT or any other purpose, as there's an exchange of value. It's closer to buying something second-hand from another private individual. Oct 31, 2014 at 11:16
  • I think the fact that the other side of the value exchange is in a different country makes it effectively a gift on this (UK) side of the equation.
    – Vicky
    Oct 31, 2014 at 11:22
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    I don't think that makes any fundamental difference in law, though it certainly could have some tax implications. Perhaps a better analogy would be selling something on eBay to someone in India. Oct 31, 2014 at 12:58
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    The relevance (IMO) of the Indian transfer to the UK is that it's linked to the UK transfer by a contract (perhaps only a verbal one). I'd expect that to be theoretically enforceable under either or both of UK or Indian law, perhaps depending on where the participants are located. Oct 31, 2014 at 17:06
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    I don't think it's illegal. I've expanded on how I see it in a new answer. I'm going to downvote this answer because I am still fairly sure the "gift" characterisation is wrong. Nov 3, 2014 at 8:15

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