Tag: WDF

Taxation of investments in Indian Mutual Funds in the UK

Gains made on disposal of Indian mutual funds are taxed at highest marginal rate of taxation

HMRC has classified overseas mutual funds as `reporting` and `non-reporting`.

Reporting means mutual funds which provided certain data to HMRC on periodic basis. HMRC publishes a list of these funds monthly. In case your mutual fund is such a fund your gain will be taxed as Capital Gains.

Non-reporting means any mutual funds which do not comply with these requirements.

Recently funds in India have started registering with HMRC and have become reporting funds so we recommend you check HMRC list before tax calculation. For a list of reporting offshore funds click here.

When you dispose offshore non-reporting mutual funds

Any gain on disposal of investments in Offshore non-reporting mutual funds (i.e., any fund based outside UK) will be taxed at the highest marginal rate of income tax and not as capital gains.

Double whammy – in case of loss, the loss is only allowed to be set-off against capital gains and not against income .

Lastly, annual capital exemption is also not available to such gains.

Conclusion: From a tax perspective, if you wish to invest in Indian stock market better invest directly in stock and shares and not via a Mutual fund.

Bonus:

  1. An article with an example.
  2. This is a complex area of law; further information can be seen at HMRC Investment Funds Manual – IFM12000 and IFM13000.
  3. Offshore gain is treated for tax purposes as miscellaneous income – [see Tolley Income tax annual 50.3] to be mentioned in SA106 2023 in Box 41.

Further reading:
1. HS265 Offshore Funds
2. Visit our Worldwide Disclosure blog.
3. To know about taxation of UK mutual funds.