A software engineer from Birmingham messaged us last year with a dilemma. He had £85,000 in his Stocks & Shares ISA. He was moving to India in six months.
His question: "Should I sell everything now or keep the ISA running?"
The answer cost him nothing to hear but saved him over ₹4 lakhs in taxes.
If you are a UK NRI planning to return, this guide will help you make the same smart decisions about your ISA and future investments in India.
The Core Problem: India Does Not Recognise Your ISA
Here is the uncomfortable truth. Your ISA is tax-free only in the UK.
The moment you become an Indian tax resident, those same gains, dividends, and interest become fully taxable in India. The India-UK DTAA does not provide any special exemption for ISA income.
This catches many returning NRIs by surprise. They assume their ISA will remain a tax-efficient wrapper. It will not.
What becomes taxable in India:
Interest from Cash ISAs gets taxed as "Income from Other Sources" at your slab rate. Dividends from Stocks & Shares ISAs face slab rate taxation. Capital gains depend on holding period and asset type.
👉 Tip: Check your residential status carefully. The taxation changes only when you become a Resident and Ordinarily Resident (ROR), not immediately upon landing.
What Happens to Your ISA When You Leave the UK?
Let me clarify the UK rules first.
According to GOV.UK guidance, you can keep your ISA open when you move abroad. Your investments continue growing. You still get UK tax relief on returns.
But you cannot make new contributions. Your £20,000 annual allowance freezes the moment you become non-UK resident.
Key rules:
You must inform your ISA provider about your move. No new deposits after the tax year you leave. Withdrawals remain allowed anytime. You can transfer between providers even from abroad.
If you return to the UK someday, you can resume contributions immediately.
The RNOR Advantage: Your 2-3 Year Tax Window
Here is where smart planning pays off.
When you first return to India, you likely qualify for RNOR status (Resident but Not Ordinarily Resident). This typically lasts 2-3 years if you spent over a decade abroad.
During RNOR, your foreign income stays tax-free in India. This includes ISA gains realised during this period.
The strategy:
If you have significant unrealised gains in your ISA, consider selling all holdings during your RNOR period. You pay no Indian tax on these gains. Then immediately repurchase the same investments.
What does this achieve? It resets your "cost of acquisition" to the current market value.
When you eventually sell these holdings as a full resident (ROR), your taxable gain will only be the appreciation after the reset date. Not the entire gain since original purchase.
I have seen clients save lakhs using this simple technique.
👉 Tip: This works only for Stocks & Shares ISAs with gains. For Cash ISAs, the income is interest, which follows different rules. Consult a CA familiar with both UK and Indian tax.
Keep or Liquidate? A Decision Framework
The right choice depends on your situation. Here is how I help clients decide.
Keep your ISA if:
You might return to the UK within 5-10 years. You want continued exposure to GBP. Your ISA holds quality global funds you want to keep long-term. The hassle of reinvesting elsewhere outweighs the tax cost.
Liquidate your ISA if:
You are definitely settling in India permanently. Your ISA has large unrealised gains you can crystallise during RNOR. You prefer managing investments in one country. You want to reinvest in Indian mutual funds or GIFT City products.
A Manchester-based engineer I advised had 70% of his savings in pounds. When he calculated retirement needs in rupees, rupee depreciation meant he would fall short by 30%. He liquidated part of his ISA during RNOR and diversified into Indian equity mutual funds.
Indian Mutual Funds: The Opportunity Waiting for You
India is one of the fastest-growing major economies. Mutual funds offer a simple way to participate in this growth.
Why Indian mutual funds work for returning NRIs:
Professional fund management. Diversification across sectors and market caps. SIP option for disciplined investing. Easier tax compliance than direct stocks.
As an NRI, you invest through NRE or NRO accounts. NRE gives full repatriability. NRO has USD 1 million annual limit.
Current taxation (FY 2025-26):
Equity funds held over 1 year: 12.5% LTCG on gains above ₹1.25 lakh. Equity funds held under 1 year: 20% STCG. Debt funds: Taxed at your slab rate regardless of holding period.
Comparing the Two: ISA vs Indian Mutual Funds
Let me break down the key differences.
Tax Treatment:
UK ISA: Tax-free in UK, but fully taxable in India once you become ROR. Indian Mutual Funds: LTCG taxed at 12.5% (equity) or slab rate (debt).
Currency:
UK ISA: GBP exposure. Helps if you have UK liabilities or might return. Indian Mutual Funds: INR exposure. Better if your expenses will be in rupees.
Regulation:
UK ISA: FCA regulated. Strong investor protection. Indian Mutual Funds: SEBI regulated. Mature framework with good transparency.
Repatriation:
UK ISA: You can withdraw anytime. Convert to INR when needed. Indian Mutual Funds via NRE: Fully repatriable. Via NRO: USD 1 million annual limit.
Compliance Burden:
UK ISA: Must disclose as foreign asset in Indian ITR. Failure attracts Black Money Act penalties. Indian Mutual Funds: Standard Indian tax compliance. Simpler for long-term residents.
The Step-by-Step Plan Before You Move
6 months before return:
Review your ISA holdings. Identify unrealised gains and losses. Calculate potential tax if you sell after becoming ROR. Decide: keep, partially liquidate, or fully exit.
3 months before return:
If liquidating, execute sales while still UK resident (no Indian tax). Open NRE/NRO accounts in India if you have not already. Complete mutual fund KYC. Many AMCs offer video KYC for NRIs.
Upon return:
Inform your ISA provider about address change. Do NOT make any new ISA contributions. During RNOR period, consider the sell-and-repurchase strategy if you kept your ISA. Start SIPs in Indian mutual funds for rupee-denominated goals.
A Smarter Alternative: GIFT City
Here is something most returning NRIs overlook.
GIFT City in Gujarat operates as India's International Financial Services Centre. It offers products that combine the best of both worlds.
GIFT City fixed deposits let you hold USD or GBP. Interest is tax-free for NRIs and RNOR status holders. Funds are fully repatriable.
Alternative Investment Funds (AIFs) in GIFT City provide access to diversified strategies usually available only to institutions.
At Belong, we help NRIs access these products through our app. You can compare GIFT City options with traditional NRE FDs and mutual funds.
👉 Tip: GIFT City products are ideal if you want currency hedge, tax efficiency, and simpler compliance than managing investments in two countries.
Common Mistakes to Avoid
Mistake 1: Continuing ISA contributions after leaving UK
This violates HMRC rules. Any contributions made while non-resident must be removed from the ISA. Inform your provider promptly.
Mistake 2: Ignoring ISA disclosure in Indian ITR
Once you are ROR, you must declare all foreign assets including your ISA in your income tax return. Non-disclosure attracts penalties under the Black Money Act.
Mistake 3: Assuming DTAA protects ISA income
It does not. The UK-India DTAA prevents double taxation. It does not exempt ISA income from Indian tax. You may claim credit for any UK tax paid, but ISA income is not taxed in UK anyway.
Mistake 4: Converting everything to INR immediately
Currency diversification has value. If you have UK liabilities (pension, property, family), keeping some GBP exposure makes sense.
Your Action Plan
Here is what I want you to do this week.
First, check your RNOR eligibility using Belong's Residential Status Calculator. Know how long your tax protection window will last.
Second, review your ISA statements. List every holding with its cost basis and current value. This is your starting point for tax planning.
Third, explore Indian mutual fund options. Use our NRI FD Comparison Tool to see how different investment products compare.
Have specific questions? Join our WhatsApp community where thousands of UK and UAE NRIs share experiences daily.
Ready to explore GIFT City alternatives? Download the Belong app and see what tax-efficient options await.
Your ISA served you well in the UK. Now let us help you build the next chapter of your financial journey in India.
Sources:
