Returning to India from the UK? Capital gains and inheritance tax may still apply

The flight back to India may mark the end of a non-resident Indian’s (NRI) life in the United Kingdom, but it does not necessarily mark the end of their obligations there. A UK home, investment portfolio, pension, Individual Savings Account (ISA), stock awards or even years spent as a UK tax resident can continue to matter long after the suitcases are unpacked in India. For returning NRIs, the financial exit can be far more complicated than the physical one.

This is the second in our series on what returning NRIs must navigate upon returning to India. The first story examined the obligations of those returning from the United States (https://shorturl.at/d6YSq). This time the focus is the UK.

Where does residency end?

The first mistake returning NRIs make is confusing immigration with taxation. Simply leaving the UK does not automatically end the country’s tax residency. HM Revenue & Customs (HMRC), the UK’s tax, payments and customs authority, determines residence using the Statutory Residence Test (SRT) framework, which looks at both the amount of time spent in the UK and an individual’s continuing connections with the UK.


“UK tax residency ends only if the individual satisfies the Statutory Residence Test (SRT) for non-residence. Continued UK accommodation, family, work activities, prior UK presence and frequent visits can all keep a person UK resident even after they have moved abroad,” said Gautami Gavankar, Head, non-resident Business, Kotak Private Banking.

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Sidhant Agarwal, Co-founder of India for NRI, a cross-border legal and taxation consulting firm, lists connect ing factors: an accommodation tie aris es from a UK home available to stay in for 91 or more continuous days if used at all during the tax year; a family tie from a spouse or minor children remaining UK-resident; a work tie from 40 or more UK workdays; and a country tie if more days are spent in the UK than in any other single country. “A person who moved but kept a UK flat available, visits frequently, and has family still there is a high-risk profile for continued UK residency,” says Agarwal.

Experts say that immigration status is irrelevant at this point. “Tax residence is separate from immigration status. Being a British citizen, holding ILR/settled status or being on a work visa does not, by itself, determine UK tax residence,” says Sandeep Bhalla, Partner at Dhruva Advisors.

Dependants are assessed individually, and a spouse who stays behind even briefly can create a family tie for the departing spouse.

The departure year

The UK tax year runs from 6 April to 5 April (of the following calendar year). When someone leaves the UK permanently for India, the departure year is the most important tax year. Two questions must be answered in sequence in the year of departure: what does the SRT say about residence, and does split-year treatment apply?

“Split-year treatment is an exception that can divide a tax year into a UK-resident part and a non-resident part. Income and gains arising in the overseas period may receive non-resident treatment, subject to various exceptions and anti-avoidance rules,” says Gavankar.

On the paperwork, Agarwal says: a self-assessment return covering the full tax year of departure must be filed. Form SA109, the residence supplement, is attached to claim split-year treatment. Form P85 should also be submitted to notify HMRC of departure. Beyond HMRC, the obligations fan out.

“Individuals should ensure that their employer, pension providers and financial institutions are informed of the change in circumstances,” says Bhalla. Further, the individual should ensure that HMRC’s records are up to date and keep copies of the final tax documents and correspondence.

What does the UK still tax?

Becoming non-UK resident does not switch off UK taxation. “UK-source income, including UK rental income and certain pension income, can continue to be taxable in the UK. Non-residents may still be subject to UK capital gains tax, particularly on UK land and property. A non-resident selling UK property generally has to report the disposal to HMRC within 60 days,” says Bhalla.

Agarwal adds: “The UK rental income net of allowable expenses, UK bank interest, pension income in payment, and gains on the UK residential property remain within the UK tax net regardless of how long the owner has been non-resident. “Gains on non-UK land assets such as shares, funds, foreign property generally fall outside UK capital gains tax once non-resident, subject to the temporary non-residence anti-avoidance rule for anyone away less than five complete tax years,” he adds.

Sonam Chandwani, Managing Partner at KS Legal & Associates, has a warning. “There can be a period during which both countries have an interest in the individual’s income and assets. The residence position, the timing of the move and the nature of each asset therefore need to be looked at together,” she says.

UK EXIT, INDIA RETURN: WHAT NRIS NEED TO DO

Establish when your UK tax residency ends

Leaving the UK is not the same as ending UK tax residency.

• HM Revenue & Customs (HMRC) uses the Statutory Residence Test (SRT) to determine UK tax residence.
• The number of days spent in the UK matters, but it is not the only factor.
• Your continuing UK connections can also matter, including:
• UK home/accommodation
• Family
• Work
• Previous UK presence
• Visits and other connection

Moving to India doesn’t wipe out UK tax

Even after becoming a non-UK resident, these UK income and gains can remain within the UK tax net.

• UK rental income; gains from a subsequent property sale
• Certain UK pension income
• UK land/property gains
• Non-residents can remain subject to UK Capital Gains Tax

Note: A non-resident selling UK property generally needs to report the disposal to HMRC within 60 days.

Foreign assets: reporting in India matters

Once an individual becomes Resident and Ordinarily Resident (ROR), foreign assets and income must be disclosed.

Including:

• UK bank accounts
• Individual Savings Accounts
• Pensions
• Foreign holdings

Don’t leave UK without sorting the paperwork

UK TAX

Self-assessment

• May be required for the departure year.
• The residence position and split-year claim, where applicable, need to be properly reflected.

Form SA109

• Used with the Self Assessment return to claim split-year treatment and identify the relevant case.

Form P85

• Can be used to notify HMRC of departure where appropriate. If filing Self Assessment, check whether a separate P85 is required.
• Generally not required if the person is already filing a Self Assessment return for the departure year.

EMPLOYMENT

Form P45

• Obtain your final leaving document from your employer.
• Confirm final payroll and cessation of UK PAYE where employment ends.

Also inform

• Pension providers
• Banks
• Brokers/financial institutions
• Other relevant institutions

Your pre-departure document checklist

Taxation

• Previous UK tax returns
• Self Assessment records
• Form P60s
• Form P45

Employment/RSUs

• RSU and option grant documents
• Vesting schedules
• Payroll records
• Work-location records

Banking & investments

• Bank statements
• Brokerage statements
• ISA statements
• Investment records

Property

• Property deeds
• Purchase documents
• Improvement-cost records
• Rental records

Retirement

• Pension statements
• Pension scheme details
• National Insurance record
• State Pension forecast

Residence

• Actual departure date
• Travel records
• Details of UK home
• Evidence supporting change of residence

Source: India for NRIs

Your UK money

On bank accounts and investment portfolios, the experts agree that wholesale closure is not the answer. “There is generally no need to close UK bank accounts simply because the person has moved to India. What is important is that the bank knows that the person’s tax residence has changed,” says Chandwani, adding that Foreign Exchange Management Act (FEMA) implications should also be checked. This is a regulatory requirement under the Common Reporting Standard (CRS), which banks use to report account details to Indian tax authorities annually. FEMA and CRS are separate frameworks, although they can intersect in the context of overseas investments or accounts.

For investments, timing a disposal is important. “UK tax exposure may differ depending on whether investments are sold while the individual remains UK-resident or after becoming non-UK resident. At the same time, once Indian tax residence begins, Indian taxation of the portfolio needs to be considered. Selling investments before departure should not be treated as automatically tax-efficient; it needs to be considered in both countries,” says Bhalla.

Savings account and pensions

Individual Savings Accounts (ISA) are a UK tax wrapper that lets residents hold cash or investments, such as stocks, funds and bonds, without paying tax on the interest, dividends or gains earned. They are a source of particular confusion for NRIs returning to India. “An existing ISA can generally be retained after the individual leaves the UK, so there is usually no reason to close it simply because of the move. However, contributions cannot normally continue once the individual becomes non-UK resident. The more important issue is that the ISA’s UK tax-free treatment does not necessarily translate into tax-free treatment in India,” says Chandwani.

Agarwal handles the arguments from the Indian position: “India does not recognise the ISA. Once the individual is an Indian tax resident, Resident and Ordinarily Resident, all interest, dividends, and realised gains inside the ISA are taxable in India under normal Indian rules, exactly as if the wrap per didn’t exist.”

On pensions, whether a workplace scheme, a Self-Invested Personal Pension (SIPP, a UK pension account where the holder chooses and manages their own investments, somewhat similar in spirit to India’s National Pension System or NPS, though a SIPP allows full flexible withdrawal while NPS requires partial annuitisation) or other retirement savings, Chandwani advises resisting the impulse to act immediately. “I would not recommend transferring a UK workplace pension or SIPP merely because the person is returning to India. In many cases, it’s simpler to just leave the pension where it is.”

The bigger question is what happens at withdrawal. The India-UK treaty becomes important in determining the allocation of taxing rights on pension income.

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Indian reporting

In terms of taxation, Residents and Ordinarily Residents (ROR) are taxed on their total global income, while Residents but Not Ordinarily Residents (RNOR) is a transitional status in which foreign income is generally not taxed in India unless it is derived from a business or profession controlled from India.

The RNOR window, typically two to three years after return, offers some relief, with foreign income largely outside Indian tax during that period. “The relevant UK income, salary, pension, interest, dividends, rental income and capital gains, needs to be examined under Indian domestic law, including the individual’s precise residential status,” says Bhalla. “The India-UK tax treaty can help allocate taxing rights and provide relief from double taxation.”

Agarwal highlights a disclosure obligation that often goes unnoticed. “Schedule FA (Foreign Assets) in the Indian ITR must disclose UK bank accounts, ISAs, pensions, and other foreign holdings once the individual becomes ROR. This is a strict, independently enforced disclosure requirement under the Black Money Act, separate from the income-reporting obligation itself.”

Notably, double taxation is resolved through the credit method. India taxes worldwide income and gives credit for UK tax already paid. Claims require Form 67 and supporting UK tax certificates.

Further, unvested stock awards such as Restricted Stock Units (RSUs) require attention before departure, not after. “The fact that the shares vest after the person has moved to India does not necessarily mean that the entire tax liability belongs to India. The period over which the award was earned and where the employee actually performed the relevant duties can matter,” says Chandwani.

Agarwal explains how the tax is divided. The UK taxes the portion of the award attributable to UK workdays, while India taxes the full vesting-date value as a perquisite. Employees should preserve grant documents, vesting schedules, payroll records and work location history before relocating.

Inheritance tax tail

The UK Inheritance Tax (IHT) is the obligation most likely to be overlooked, and the rules changed fundamentally from 6 April 2025. IHT exposure is now tied to how long someone has lived in the UK, not to domicile or citizenship. Anyone who has been UK tax resident for at least 10 of the previous 20 tax years qualifies as a “Long-Term Resident,” and their worldwide assets, not just what they hold in the UK, can stay within the scope of UK IHT even after they leave, explains Bhalla. “That exposure can continue for a three-to 10-year period after departure, depending on the individual’s residence history,” he says.

The tax itself works the same way it does for any UK estate: the first £325,000 passes tax-free, with an extra £175,000 if a home goes to children or grandchildren, and everything above that is taxed at 40%.

For a Long-Term Resident, that 40% rate applies against the entire global estate, not just UK assets.

UK-situated assets remain subject to IHT regardless of where the owner lives, says Gavankar.

Before you fly

The checklist before departure is long but manageable if approached in the right order. Bhalla reduces it to five steps: determine SRT residence and split-year treatment; document the departure date; inventory UK assets; update relevant institutions and tax records; and plan major disposals—RSUs, property, and pensions.

Agarwal adds the documents to collect: the P45 on the final payslip, the last two to three years of P60s, RSU grant and vesting statements with workday records, three to five years of self-assessment returns, banking and ISA statements, property deeds, and pension UTRs. Records should generally be retained for a minimum of six years from the end of the relevant UK tax year.

The common mistakes returning NRIs make are: assuming leaving the UK ends residency; continuing ISA contributions after becoming non-resident; missing the 60-day CGT reporting deadline on property sales; overlooking Indian Schedule FA disclosure for UK bank accounts, ISAs and pensions; not claiming Foreign Tax Credit correctly, specifically, filing Form 67 after the Indian ITR deadline; and forfeiting the credit entirely. The decision to return to India is deeply personal. People come back to be closer to family, build businesses, and start new chapters. But rationalising their financial lives is the trickier part of the transition.

“Clients have information, sometimes, too much information. What they need is clarity and confidence that important decisions are being made in the right order. Given the cross-border tax and legal considerations involved, seeking professional guidance is often one of the most important steps in making that transition smoothly,” says Gavankar.