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For Non-Resident Indians (NRIs) residing in the UK or those with financial ties to the UK, investing in ISAs (Individual Savings Accounts) is a popular way to build wealth tax-efficiently. But once an individual’s residency status changes—from resident to NRI—the tax treatment and eligibility of ISAs also changes.

This blog explores how NRI ISA Tax are taxed for NRIs, what happens when your residency status changes, and how to navigate compliance with both UK and Indian tax regulations.

What is an ISA?

An Individual Savings Account (ISA) is a tax-advantaged investment or savings vehicle available to UK residents. It allows you to invest in cash savings, stocks and shares, or peer-to-peer lending (via an Innovative Finance ISA), with returns such as interest, dividends, and capital gains being completely tax-free in the UK.

The annual allowance for ISAs is £20,000 (for the 2025–26 tax year), and this limit can be allocated across different ISA types.

Can NRIs Open or Continue ISAs?

1. Opening an ISA:
Only UK tax residents are allowed to open a new ISA. If you are an NRI, i.e., not a UK tax resident, you cannot open a new ISA.

2. Continuing an existing ISA:
If you opened an ISA while you were a UK resident and then became an NRI:

• You can retain the existing ISA account.
• Your investments can continue to grow tax-free within the UK.
• However, you cannot contribute further to the ISA once you become a non-resident.

You must inform your ISA provider about your change in residency status to remain compliant.

Tax Implications for NRIs in the UK (NRI = Indian citizen or OCI cardholder now residing outside the UK)

1. UK Tax Treatment:

• As long as your ISA was opened while you were a UK resident, any returns—interest, dividends, or capital gains—remain tax-free in the UK, even after you become non-resident.
• However, no new contributions can be made unless you resume UK residency.

2. India Tax Treatment:

Here’s where it becomes complex. India does not recognize the tax-exempt status of UK ISAs. So, if you’re now a tax resident in India, the returns earned from ISAs may be taxable in India under Indian tax law.

• Interest Income: Taxable as “Income from Other Sources.”
• Dividends: Taxable at the applicable slab rate.
• Capital Gains: Taxable depending on whether the investment is equity or debt-based, and whether it’s long-term or short-term.

Note: The UK-India Double Taxation Avoidance Agreement (DTAA) does not provide specific relief for ISA income, meaning the income might be taxed in India even if it’s tax-free in the UK.

Common Scenarios for NRIs with ISA Accounts

✅ Scenario 1: NRI with existing ISA, now based in India

• You can retain your existing ISA.
• No further contributions are allowed.
• You may need to declare and pay tax in India on any income or gains from the ISA.

✅ Scenario 2: Returning to the UK after NRI period

• You can resume contributions to your existing ISA once you regain UK tax residency.
• Your allowance for the year will depend on the remaining portion of the £20,000 annual limit.

❌ Scenario 3: NRI wishing to open a new ISA

• Not permitted unless you are a UK tax resident.

Compliance Tips for NRIs with ISA Accounts

1. Inform Your Provider: Always notify your ISA provider of any change in residency status to avoid penalties or disqualification.
2. Declare in India: If you’re now a tax resident in India, report your ISA earnings in your Indian income tax return.
3. Avoid New Contributions: Don’t attempt to contribute while non-resident; it’s against ISA rules.
4. Seek Professional Advice: Given the cross-border nature of tax implications, it’s wise to consult an expert familiar with both UK and Indian tax laws.

Final Thoughts

For NRIs who established their ISAs during their UK residency, these accounts can continue to grow and serve as a useful tax-free asset under UK law. However, the tax treatment changes once you’re an Indian tax resident. Since India does not offer the same exemptions as the UK, you may owe tax on your ISA income and capital gains in India.

To ensure full compliance and make the most of your international investments, NRIs should maintain clear communication with their financial institutions and consult with cross-border tax experts when needed.

If you’re unsure about your ISA tax obligations as an NRI, Dinesh Aarjav & Associates can help guide you through the tax regulations in both India and the UK.

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