NRIWallah team
Updated October 2026 · 7 min read
If you live in the UK and hold Indian mutual funds, a letter headed “Investors in offshore funds” may have landed on your doormat this month. It is real, and it is not an investigation. It is a nudge to check that your tax return covers your funds. Here is what it means and what to do.
In short
- HMRC is sending letters to people it thinks hold, or recently held, offshore funds. It says it is educational and not a compliance check.
- Indian mutual funds are generally offshore funds for UK tax, and they are usually non-reporting funds, which taxes gains as income.
- You do not have to reply. You do have to check your past returns.
- If something was missed, you can correct it, and it is better to do so before HMRC asks.
What the letter says
The letter describes itself as part of an educational campaign. It says HMRC’s records suggest you may hold, or may recently have held, an investment in an offshore fund. It encloses a short “need to know” guide for investors, which explains what an offshore fund is, how reporting and non-reporting funds differ, how to check a fund’s status and how to correct a return.
It does not ask you to reply and sets no deadline. The practical ask is to read it, work out whether your funds were included on your Self Assessment returns, and correct earlier returns if not.
Is it genuine?
Letters like this are easy to copy, so check before you act. On GOV.UK, search for “Check a list of genuine HMRC contacts” and compare the sender and the way you were contacted. Do not click links or ring numbers from the letter itself. If in doubt, log in to your HMRC online account separately.
Why so many NRIs are getting it
HMRC has not said where its data comes from. The most likely source is the Common Reporting Standard, under which more than 100 countries, India among them, automatically share details of financial accounts and investments held by each other’s tax residents. If your Indian fund account lists a UK address or UK tax residence, that information can reach HMRC. Our guide to which countries to declare on tax forms explains how that declaration works.
Reporting and non-reporting funds
An offshore fund is, broadly, a fund based outside the UK that meets certain conditions under UK tax law. Each sub-fund and each share class is treated separately. Indian equity, debt, hybrid and index funds, ELSS schemes and Indian ETFs are generally offshore funds, including when you invest through a SIP.
There are two kinds:
- Reporting funds have HMRC’s approval and report their income to investors each year. HMRC publishes a list of them on GOV.UK.
- Non-reporting funds are all the others, including funds that have left the reporting regime.
Indian mutual fund schemes are usually non-reporting, but do not assume. Check each fund by its exact name, share class and ISIN on the HMRC list, because status can differ by scheme and by period. A fund that has reported only recently can still produce a gain taxed as income if it was non-reporting earlier in your holding period.
How Indian mutual fund gains are taxed in the UK
Income while you hold. Payouts, including IDCW distributions, are taxed in the UK in the year you receive them. They are taxed as dividends, except where the fund holds mostly interest-bearing assets, as most debt funds do. Where more than 60% is in interest-bearing assets, the payout is taxed as interest instead.
Gains when you sell. This is the trap. A gain on a non-reporting fund is treated as an offshore income gain and taxed as income at your marginal rate, not as a capital gain. There is no capital gains annual exempt amount against it, and capital losses cannot be set against it. Offshore income gains go on page 6 of the foreign pages of the Self Assessment return, under other overseas income and gains.
What counts as a sale. Any redemption is a disposal, even if the money stays in India or is reinvested. Switching between schemes is a disposal too. A long SIP history means many small purchases and a longer record to match.
For reporting funds, you are taxed each year on your share of the fund’s reported income whether or not it is paid out, and gains on sale are usually capital gains.
A worked example
This is illustrative only. A higher-rate taxpayer redeems an Indian equity fund in 2025/26 with a gain of £10,000.
| Treatment | Calculation | UK tax |
|---|---|---|
| Non-reporting fund (offshore income gain) | £10,000 × 40% | £4,000 |
| If it had been a capital gain | (£10,000 − £3,000 annual exempt amount) × 24% | £1,680 |
The difference is large, which is why the fund’s status matters so much. Both figures ignore tax already paid in India, covered next.
What if you already paid tax in India?
India taxes NRIs on gains from Indian mutual funds, usually with tax deducted at source. You may be able to claim credit for that Indian tax against the UK tax on the same gain under the India-UK treaty. The credit is generally limited to the UK tax due on that income, so it can reduce the bill but not take it below zero. Because the UK treats the gain as income while India treats it as a capital gain, the claim needs care. Check the treaty and HMRC’s guidance on foreign tax credit relief, or ask an adviser. The DTAA estimator shows the principle.
Just moved to the UK?
Since 6 April 2025, people who become UK resident after at least ten tax years of non-residence can claim relief on foreign income and gains for their first four years, through Self Assessment. You still report the income, and claiming costs you the personal allowance and the capital gains exempt amount. Offshore income gains may be covered, but check with an adviser before relying on it.
What to do now
- Do not panic and do not rush. Read the letter and its enclosure.
- List your funds. Every Indian mutual fund you held in each UK tax year, including ones you sold.
- Check each fund’s status on HMRC’s list of reporting funds, by name, share class and ISIN.
- Gather records. Your CAMS or KFintech consolidated account statement shows purchase dates, costs and redemptions. Add fund factsheets, distribution history, Indian TDS certificates (Form 16A) and your Indian return acknowledgements.
- Convert to pounds at the exchange rate on each transaction date.
- Compare with your returns. Did each year include the payouts and any gains?
- Correct what was missed (next section), ideally with a UK tax adviser who sees the letter.
How to fix a past return
- Recent years. You can amend a Self Assessment return online up to 12 months after the 31 January filing deadline. For 2024/25, that is until 31 January 2027.
- Older years. Use HMRC’s Digital Disclosure Service, which you can find by searching for it on GOV.UK.
- With help. Show the letter to a qualified UK tax adviser and let them handle it.
Correcting a return yourself, before HMRC opens an enquiry, generally attracts lower penalties than waiting. For offshore matters HMRC can look back many years, up to 12 years where the error was not deliberate.
The bottom line
The letter is a reminder, not a charge. Most people can sort it out by listing their funds, checking their status and amending a return if needed. Start with the funds you sold, because that is where the tax difference is largest.
General information, not tax advice or an investment recommendation. Rules, rates and HMRC’s lists change, and your position depends on your facts. Speak to a qualified UK tax adviser.
