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Rishi Sunak in action, 2021
Rishi Sunak_2021_HM Treasury

The Sunak soap opera: An accountant’s take

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The Chancellor’s wife’s tax status has opened a can of worms that may be hard to shut down. The Imprudent Accountant offers an accountant’s view on the non-dom controversy.

11th Apr 2022
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This column was drafted as recently as last Friday but nowadays a few hours are a long time in politics. Therefore, please read all the way to the postscript.

I was going to start by saying you have to feel sorry for poor Rishi Sunak and his wife, Akshata Murty. On reflection, the adjective might be inappropriate, given that the Chancellor of the Exchequer shows every indication of having loads of cash to fling around, while his good lady is frequently referred to as a billionaire tech heiress.

Following his disastrous Spring Statement, there was a strong feeling that Mr Sunak’s chances of becoming Prime Minister in the very near future had suffered what might be a terminal decline.

However, that wasn’t good enough for his detractors. Now, some rather nasty and inaccurate accusations are being directed towards his wife and the tax relief that she derives as a result of claiming to be non-domiciled.

Ironically, there have been frequent media references to an assumption that Ms Murty is richer than the Queen. A better comparison might be to note that like HM, Ms M chooses how much tax she fancies paying in the UK government each year.

Pleasingly, the conspiracy theorists are out in strength, arguing over whether the source of these leaks was someone in the Labour Party seeking to do the Chancellor down, or his own Prime Minister. No doubt, in time, the truth will emerge.

Those in the accountancy profession and, more particularly, tax specialists will have been disappointed by the lack of rigour demonstrated by media pundits, when it comes to understanding the technical aspects of the story.

Ms Murty has muddied the waters herself, by making such a fuss about her continuing Indian citizenship and inability to become a citizen of the United Kingdom, without sacrificing that status.

This is completely irrelevant when determining domicile. Ridiculously, the status is still primarily based on the domicile of an individual’s father at the date of their birth.

However, to retain that status and claim the very generous tax reliefs if you become resident in this country, it is necessary to have a firm intention to return “home” permanently at some point in the future.

If HMRC were to investigate every non-dom carefully, they might well conclude that such intentions are often imagined or very unlikely to be fulfilled. In this case, it seems hard to believe that Mr and Ms Sunak could carry on an adequate relationship if he was high profile London-based politician and she lived in India. Stranger things have happened but… that is before you realise that each had obtained a green card by stating their firm intention to become a permanent US resident.

The next inexplicable decision comes not once but twice, since both the Treasury and the Cabinet Office apparently determined that there was no conflict-of-interest for Mr Sunak in a situation where his wife was not only domiciled in India but avoiding what was reputed to be £4m of UK taxation each year as a result.

As far as I know, the person who can eventually decide to close this gigantic loophole is the Chancellor of the Exchequer. I don’t want to be unkind but if my wife was receiving £4m a year from the government and I had that kind of power, I wouldn’t close down non-dom status.

Ms Murty has also shown a degree of naïveté in her denials about the possibility of forgoing the advantage. Once again, we will all readily understand why she doesn’t want to. However, as far as I know not only do you have to claim non-dom status but if she really did want to benefit the Exchequer (i.e. hubby’s fiefdom) she could either a) determine that there was no serious plan to return to India; or b) simply remit her offshore earnings to the United Kingdom.

Finally, this might be a good news story in the long run. Quite frankly, non-dom status is heinous, not to mention archaic, having been introduced in 1799.

It is currently largely being utilised as a means of persuading Russian oligarchs and their peers from around the world, including a fair number of criminals, to bring money into the UK.

The deal is that if you are stinking rich, then come and spend some of your money here and we will pretty much waive all tax liabilities, subject after a few years to a token £30,000 which most won’t even notice. That is quite ironic, when long-term residents earning under £30,000 are getting squeezed by not only the worst cost-of-living crisis in living memory but also world-beating tax rises.

I fear there is every chance that this story will run and run. The big question is whether Rishi Sunak will please his next-door neighbour by quitting rather than see his wife bludgeoned by popular opinion into losing several million pounds per annum. I don’t have the answer – I doubt that he does either.

Postscript

A few hours after this article was originally completed, Akshata Murty announced that going forwards, she would cease to claim non-domicile status, as this was morally right.

There seemed to be two possible reasons. First, she may be willing to invest £4 million a year in her husband’s career, bolstering his position as Chancellor of the Exchequer and gambling on a future role that is even more senior.

The uncharitable might suggest that given the facts advisers have suggested that her claims to be a non-dom may not stand up to close scrutiny, in which case she could be trying to restrict exposure to future income, always a good negotiating strategy.

Since the latter interpretation is at least a possibility, one hopes that the Chancellor of the Exchequer (whoever he may be) is having a quiet word with a bigwig from his next-door neighbours at HMRC, to suggest that they explore the validity of Ms Murty’s claims for past years. After all, the national coffers could certainly use an extra £20 million.

Replies (18)

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By Justin Bryant
11th Apr 2022 14:59

A better than average commentary (not difficult in this case), but I doubt many people feel sorry for such very rich people as you (were going to) claim.

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By hfiddes
11th Apr 2022 15:37

Good article, thank you, and at last someone mentioning the long term commitment angle which everyone else seemed to be ignoring.

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Replying to hfiddes:
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By Justin Bryant
11th Apr 2022 15:54

I'm basically the only other person here who picked up on that last week re the potential domicile of choice problem issue and the interaction with their GCs (intending to go to India to look after your parents would never wash as an excuse with HMRC; otherwise everyone could use that as a fig leaf excuse for not getting a UK domicile of choice despite being married to a UK citizen and UK resident with a UK family etc.).

It certainly seems a bit ridiculous and disingenuous for her to claim she's somehow voluntarily opting to pay UK tax henceforth in the face of all these revelations.

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By SteveHa
11th Apr 2022 15:46

You missed the third possible be reason, being that the hypocrisy is now in the public domain, and so having been caught she and hubby figured that they should do something. I dare say if it hadn't been leaked there would be no consideration of the moral imperative.

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By Trethi Teg
11th Apr 2022 16:08

Now that Mrs Sunak has said that she will pay tax on her worldwide earnings I suspect that the dividends she normally receives will be, in some way, not paid any longer. No dividends - no tax. I guess she will get her money from loans secured on her shares - no tax. She and her husband will eventually leave the UK for pastures green, repay the loans plus minimal interest - no tax. Her dad will then find a way of making up the dividends missed - no tax.

If now one else can see this coming then they are not looking hard enough!

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By Paul Crowley
11th Apr 2022 18:39

Given that it is "challenging" for a Chancellor to claim that he failed to understand his wife's tax affairs, and accepted the feeble "going back to look after billionaire parents" as the excuse for claiming Non dom, together with the feeble nationality excuse, perhaps we need a Chancellor that understands tax rules and expects his immediate family to comply.
Maybe it is time to get that green card sorted and move on.

I think that the postion of Chancellor is much more of an exposed position than even the PM in the UK for tax related malarky, given that in reality the Chancellor should be the one to root out tax malarky.

The damage is done and was so easily predictable for the parties who knew about the non dom postion

This issue will drag on because we all doubt politician promises.

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By North East Accountant
13th Apr 2022 09:56

"Akshata Murty announced that going forwards, she would cease to claim non-domicile status".

2021/22 - she'll claim non-dom status by 31/01/23.

2022/23 - She'll give up non-dom status "going forward".

But she's got until 31/01/24 to submit her 2022/23 UK Tax Return so if Rishi is out of a job by then she can easy change her mind and claim it.....losing nothing.

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By DJKL
13th Apr 2022 10:30

At least they can now throw a party to celebrate their future permanence in the UK.

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By vstrad
13th Apr 2022 10:52

I doubt the source of the leak will actually emerge, as there hasn't been a leak. This story was reported by Private Eye in March last year. No one batted an eyelid. Just like Partygate though, someone has decided that now is the time to get their friends in the press to republish and make a thing of it.
I don't think maintaining the status quo on non-Dom rules is a conflict of interest for Rishi. Changing them to benefit his wife would be, leaving them alone, not really. non-Dom rules may need changing but they currently being in about £8B for the Exchequer, so Ms M's paltry £4M should not really impact the debate.
None of the above changes the political calculus for Rishi of course.

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By PhilipJG
13th Apr 2022 11:01

Suppose Rishi gets covid and dies. Would Akshata stay in the UK or hop off back to India? Surely the latter, in which case her continuing Indian domicile is not such a far-fetched proposition?

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By RayM55
13th Apr 2022 14:27

A good effort to bring some balance, but this is not correct “However, to retain that status and claim the very generous tax reliefs if you become resident in this country, it is necessary to have a firm intention to return “home” permanently at some point in the future.”

The law requires that the individual has not formed a clear intention of remaining in the UK permanently or indefinitely often then suggested as “till the end of their days.”

Whether that individual intends to return or go to India (in this context) is irrelevant providing the circumstances upon which the individual will leave the UK have credibility and are not fanciful.

The error Sunak made was in not recognising the fact that it was unlikely to remain a secret, the general public don’t understand the rules and even if it was explained to them, most would still think it was dodgy.

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By Charlie Carne
13th Apr 2022 19:39

Akshata Murthy has NOT announced that she will change her domicile (by applying for a domicile of choice in the UK), but, instead, that she will no longer claim the remittance basis that she is eligible to, by virtue of her non-dom status. Whilst this achieves the same effect for income tax purposes, as this is a forum for accountants, the distinction is important (not least because it enables her to legally avoid any IHT on her overseas estate when she dies, under an exemption in the UK-India tax treaty).

I'm no expert on the tax law of domicile, but I believe that a domicile of origin can only change if a taxpayer applies for a domicile of choice which, by definition, requires the tax payer to chose to change it. I do not believe that HMRC have the power to unilaterally determine a domicile that is different from that of origin (though they can, of course, determine that a domicile of origin is not that which has been claimed). Since 2017, a taxpayer will be deemed to be UK domiciled (which is not the same as being UK domiciled) for tax purposes if they have been UK resident for at least 15 of the 20 years immediately before the relevant tax year but, even if she gave up all ties to India, HMRC could not unilaterally decide that Murthy's domicile was in the UK. Again, to the general public, the distinction between domicile and deemed domicile is academic, but important in this forum.

It seems perfectly natural to me (ignoring the tax considerations for a moment) that Murthy does not want to change her domicile to the UK, as that would be to formally reject her ties to the place of her birth and where her family live, especially as a person of a very prominent family who owes her entire wealth to a business that was created in India. How would we feel in the UK if a public figure decided to reject all ties to the UK and announce that their allegiance (not merely their home) was now in India, or the US or anywhere else? Come to think of it, how did we react when the globally famous British husband of a second-rate American actress recently moved to the US and very publicly severed all ties with his home and family in the UK?

The issue here is not her domicile, but her choice to use the remittance basis for tax (and I repeat my earlier comment that this distinction is too academic for the press outside our profession to care about). If neither of them were in politics, but famous for some other reason, there would be nothing to be shocked by. After all, this isn't some clever scheme that a tax lawyer has dreamt up to pervert the spirit of some obscure legislation (like the tax schemes that put a bunch of footballers and comedians on the front pages of the red-tops a few years ago), but simply requires the taxpayer to tick a box on their tax return to claim a relief that was specifically designed to benefit people in their position.

I am pleased that they have (very belatedly) decided to forego this tax relief, as it is utterly unacceptable (despite being entirely legal) that the person who decides whether this hugely beneficial tax break should be retained is someone who personally gains from its continued existence.

It's surely time that the whole position of allowing non-doms to claim the remittance basis is looked at again by an independent body and only if there is evidence that it encourages significant inward investment to the benefit of the UK economy should it be retained (though perhaps with further tightening). If, on the other hand, there is any reason to believe that successive governments (of all political hues) have retained it simply because they were persuaded by wealthy foreign donors to their political parties, then it must go.

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By countinghouse
17th Apr 2022 12:53

I am more concerned that Rishi Sunak has a green card and it now appears Savid Javid has been a non-dom in the past. As I learnt a non-dom status is based on where the 'heart' resides in both cases it is difficult to see them committed to the UK in the long term.

I am surprised individuals can hold high government office with , in effect, a suitcase packed ready to go.

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Replying to countinghouse:
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By RayM55
17th Apr 2022 14:42

It’s nothing to do with where the heart lies. It’s a legal basis that owes nothing to the heart and everything to do with an accident of birth.

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By Moo
21st Apr 2022 11:45

According to his Wikipedia entry Sajid Javid was born in Rochdale and brought up and educated in UK though admittedly his parents were immigrants. I can't help thinking he may have been stretching the non-dom concept or possibly getting confused with non-residence.
But no, I can't be right, after all The Saj is a previous Chancellor so must be an expert on these things.

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Replying to Moo:
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By North East Accountant
21st Apr 2022 12:54

Your Domicile of Origin is based on where your father was born not where you are born so he could have been a Non-dom.

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By rockallj
02nd May 2022 11:39

"Your Domicile of Origin is based on where your father was born not where you are born so he could have been a Non-dom".

True, if your parents were married at your birth, otherwise your mother's domicile.

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Replying to Moo:
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By RayM55
21st Apr 2022 16:25

If you are born in the UK, never left the UK, you may nevertheless still be non-Domiciled here.

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