HMRC foreign income letter

Harry2626

Hi,

I obtained a 'nudge' letter from HMRC regarding potential tax liability due in relation to an NRE account I have in India. The money in the NRE account is a gift from my parents but is kept in the form of fixed deposits and earns interest. I have a few queries that I need help with:

- Do I need to pay any type of tax on gifts from parents in India? eg: inheritance tax?
- On the interest income generated, what personal allowance can I use? I dont claim remittance basis
- Whilst I dont pay tax on interest income in India on an NRE account, can I still use a double tax relief? My understanding is that the Indian marginal tax rate can still be reliefed (upto 15%) per Article 24(5) UK-India Double Tax Convention. But how much is the marginal rate in India that can be reliefed?
- The accounts are older than 4 years, but do I only need to disclose 4 years of taxes per Section 34 of the Taxes Management Act 1970 (TMA70, S34), amended by Paragraph 7 of Schedule 39 of the Finance Act 2008?
- What happens if I ignore the letter from HMRC?
- Do i get charged penalty for failure to notify and failure to submit self assessment tax forms (would only have needed it due to foreign income). If so, do I get charged penalty twice? How do I calculate the penalty costs?

Any assistance will be greatly appreciated

masonic

It seems HMRC are sending out a batch of these letters. Yours is the second thread over the last few days asking about one.

If the money is a gift then it doesn't seem likely there are any immediate tax consequences from that. The interest would be taxable, but is it enough for there to be any tax liability? If it qualifies as interest, then it may be covered by your Personal Savings Allowance.

wmb194

If you haven't paid tax in India then there's no relief to claim.

ivormonee

Another thread on HMRC nudges!

I'm not sure if NRE accounts (I had to search for this as I didn't know what it was) have any particular idiosyncrasies. Also, you already sound more knowledgable with lots of specific detail that most on here won't have. Professional advice might be a better option. However, I might be able to offer some pointers on a small number of your points, more generally.

You'd be subject to IHT on your worldwide assets. Gifts are included but are PETs and so subject to the seven year rule. I'm sure that would apply here. Worldwide income is subject to UK income tax, so the UK allowances would apply. wmb194 has already answered the point about double tax relief.

I don't know what the disclosure requirements are in terms of whether it's limited to four years. Someone else will need to advise on that. Ignoring the letter probably depends on what it says. I've not seen a nudge type letter so don't know what might or might not be required. If it suggests no action required if everything is already in order then fine, but if there is undisclosed income then likely not. I'd also be interested to know if there is a requirement to register for self assessment for the sole purpose of letting HMRC know about foreign income or whether that can be done outside of the self assessment process. A lot of people have some income from overseas and I don't know if they generally do tax returns just for that, or even if they are required to.

That's my tuppence worth on this one.

MarcoM

The first question is, do you think you should have been filing self assessment?