Non-dom tax payers – savvy or scoundrel? – Birmingham Post article 28.04.2022

The row over the financial affairs of Chancellor Rishi Sunak’s multi-millionaire wife Akshata Murty has put non-domicile status firmly in the spotlight.

That is because it allows a small but significant number of the ‘super-rich’ to minimise their tax bill.

The practice is complicated and hence easy for critics to decry as part of the supposed fat cat gravy train. However, arguably, these people are assets to the country and hence need to be kept onside.

Non-dom is legal, is claimed by more than 75,000 mostly foreign nationals working in the UK, and has been with us a very long time, having been first introduced under King George III in 1799.

So, what, you might ask, is all the fuss about?

Reuters notes: “Non-dom status is controversial as it is an option for very few taxpayers and is overwhelmingly used by the top one per cent of earners, for whom it can facilitate tax avoidance.

“Being non-domiciled can be used by someone who lives in Britain but has a ‘primary connection’ – broadly speaking, their permanent home – outside the country.

“If someone is non-domiciled, they can choose to pay tax on a remittance basis – that is, only on income that they bring into the UK – or on their global income.

“They still have to pay tax in Britain on money earned in Britain.”

Why then is it such a hot potato given it is tax evasion which is the crime, not tax avoidance?

Reuters goes on: “It can favour wealthy individuals who earn income outside Britain, allowing them to benefit from lower tax rates overseas.

“This has made it a target for those who say the British tax system benefits the rich, and is often used as a pejorative term.”

A person can only be classed as non-domiciled for up to 15 years while living in Britain. Permanent non-dom status was abolished in 2017.

To pay tax on a remittance basis, there is a fee of £30,000 per year, rising to £60,000 for those resident in Britain for at least 12 years.

A person with non-dom status must demonstrate to HM Revenue & Customs that their domicile – at least for tax purposes – is in another country. Usually their domicile will be the country that their father considered their permanent home when they were born, and to which they intend to eventually return, perhaps when they retire.

Domicile is distinct from nationality, residence or citizenship. It may not be the same as the country you live in.

In the case of Ms Murty, she is an Indian citizen, was born there, is the daughter of the founder of Indian IT services company Infosys, and earns roughly £11.5 million in annual dividends from her 0.93 per cent stake in the business.

Nevertheless, being the citizen of another country doesn’t make you automatically a non-dom. And being a non-dom doesn’t mean you automatically get taxed as a non-dom – that only happens if you choose to be so, which is what Ms Murty did, though since the furore blew up, she has now opted to pay tax on all her overseas income in the UK.

A fast change of mind, no doubt to Rishi’s immense relief, most pundits being of the opinion that his political career was very much on the line. She could have brazened it out, and it is worth emphasising that she has done nothing illegal throughout, but, however unfair, perception can be more damaging than fact in today’s world.

So, is the non-dom system still fit for purpose or some archaic relic of empire?

That rather depends on your political leanings.