Tax

UK Government Attacked Over Non-Dom Regime

Tom Burroughes, Group Editor, London, 8 April 2022

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Defenders of the non-dom regime say such wealthy people are still taxed on certain UK-based activity. They will have to pay inheritance tax on UK assets, for example.  Governments in recent years have tightened the non-dom regime, ending the ability of people to enjoy this status permanently.

(Adds analysis, comment.)

UK finance minister, aka Chancellor of the Exchequer, Rishi Sunak, is facing political heat after it emerged that his wife has non-domiciled status for tax purposes.

This status means that Akshata Murty does not have to pay UK tax on income earned abroad. Murty earns money from shares in an Indian software giant founded by her billionaire father, as media reports noted. Her spokeswoman said she pays all tax due in the UK (source: BBC, 7 April).

Defenders of the non-dom regime say such wealthy people are still taxed on certain UK-based activity. They will have to pay inheritance tax on UK assets, for example.  Governments in recent years have tightened the non-dom regime, ending the ability of people to enjoy this status permanently. Critiques of the regime intensified after the 2008 financial crash and as hostile coverage of offshore financial centres gained momentum.

The opposition Labour Party has called for "complete transparency" on the matter.

A figure in the field of tax and private client work wasn't impressed by political noises about Sunak's wife and her arrangements.

"I guess it’s the same old same old. The law is the law and the Chancellor's wife is free to take best advantage of the UK system," Miles Dean, head of International Tax at Andersen in the UK, said.

"This story proves the paucity of political argument in the UK. If Labour are that concerned about the benefits provided to non-doms (which are abundant throughout the world) they need to make the abolition of non-dom status part of their next manifesto. Singling out one woman, who happens to be the Chancellor's wife (of whose tax affairs we know very little), for political capital is, I’m afraid, par for the course and what we have come to expect," Dean said.

The issue is awkward for Sunak who has been billed as a potential future Prime Minister if or when Boris Johnson leaves 10 Downing Street. Sunak has hiked taxes such as national insurance contributions – a payroll tax – to the fury of some of his own Conservative colleagues. The government has raised taxes to the highest level in about 70 years, citing the cost of paying for health and elderly social care as a reason. The COVID-19 pandemic and furloughs of millions of employees hit public coffers.

People can be granted non-dom status if they live in the UK but intend to return to their home country. Murty is an Indian citizen and has retained family ties to India. One report (BBC) said Murty has said that she would like to return there. She automatically loses her non-dom status if she has lived in the UK for 15 years.

The question, however, is that while the "optics" of a Chancellor's wife using non-dom status might be politically off-key, the non-dom regime - used for centuries - is the law of the land, and that legislators can change it if they wish, and have done so. (Editor's comment: The issue also raises whether the financial, and entirely legal, activities of a politican's spouse are legitimate areas of media/public concern or private.)

“Akshata Murty, the daughter of an Indian billionaire, has simply elected to be taxed on the remittance basis as a non-domiciled individual. As only about 75,000 individuals claim non-UK domicile status in their tax returns each year, it is understandable that the details of the remittance basis are not widely known,” Dhana Sabanathan, partner at Winckworth Sherwood, said.

“It is not surprising that there is confusion over the concept of domicile, which is not defined in statute. Instead, one has to rely on cases (common law) for interpretation. There have been a number of cases on domicile over the last hundred years. It is perhaps fitting that a concept introduced in 1799 to protect colonial interests of the British in India, is now being used by wealthy Indians in the UK. In broad terms, a person’s domicile is where they consider to be their permanent home (even if it is not their current home) and where they continue to have strong personal, cultural and economic ties,” Sabanathan continued. 

“Unfortunately, even Ms Murty’s own spokesperson seems to have got a bit confused when releasing a statement to explain why her client relies on her non-UK domicile. The statement read that 'India does not allow its citizens to hold the citizenship of another country simultaneously. So, according to British law, Ms Murty is treated as non-domiciled for UK tax purposes.’ As has been widely pointed out, nationality is not definitive when it comes to determining domicile,” Sabanathan said. “Furthermore, Ms Murty does not automatically benefit from her non-UK domicile status; she has to claim it each year in her self-assessment tax returns. Assuming Ms Murty has been resident in the UK for at least seven years, she now pays an annual charge (currently £30,000, which increases to £60,000 after 12 years of residence), in order to continue to claim the remittance basis.”

Sabanathan added that the number of people claiming the remittance basis has decreased in recent years, after the introduction of a time limit for being able to claim during the first 15 (out of the previous 20 tax years) years of UK tax residence. If she were to leave the UK, one would expect she would leave with her family. As the Chancellor has been discussed as a potential future candidate for prime minister, the idea that he may not be resident in the UK long-term has taken many by surprise.”

 

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