In the last few days there have been a lot of talks about the tax scandal involving Akshata Murty, wife of the Chancellor Rishi Sunak, who was accused of having taken advantage of a tax loophole that allowed her to reduce taxes on income produced abroad, thanks to her non-domiciled status. It is not yet clear how much Akshata Murty has saved, but according to authoritative sources the non-domiciled status has led her to save millions of pounds in taxes on foreign earnings over several years.
Non-dom status is legal but controversial, but what is it specifically? Non-domiciled status is an optional status for UK residents whose permanent home - or "domicile" - is abroad.
This status would allow these individuals not to have to pay taxes on income generated abroad. The government website 'Gov.uk' defines a person's domicile as the country where their father considered their permanent home when they were born. The status can change if the individual who has since moved to the UK has no intention of returning. If the foreign income is less than £2,000 in the relevant tax year and it is not transferred to the UK, for example into a UK bank account, the person with non-dom status does not have to pay any tax on it in the UK.
With income in excess of £2,000 per year, or if it is brought into the UK, there are two options:
- Paying UK tax on foreign income and claiming a refund for being taxed twice. The UK government says that tax relief rules usually refund some or all of these taxes.
- Paying UK tax only on the foreign income transferred to the UK and paying an annual rate to avoid paying tax on the remainder.
This option is available to those who have lived in the UK for a number of years: the annual fee is £30,000 for residents who have lived in the UK for at least seven of the last nine tax years and £60,000 for twelve of the last fourteen. Non-dom status means that Ms Murty didn’t have to pay UK tax on income from dividends from foreign investments, rental payments on overseas property or bank interest. It also means that a person can avoid UK inheritance tax. Rishi Sunak's wife defended herself against the allegations, saying that she had to use non-dom status because of her Indian citizenship, since India does not allow dual citizenship, which is why under UK law, she is treated as a non-domiciled for UK tax purposes.