Sunak faces pressure over wife’s non-dom statusby
Akshata Murty, wife of Chancellor Rishi Sunak, has admitted she has non-domicile status, which can be used to reduce the UK tax she pays on her world-wide income. Rebecca Cave explains why this matters.
Many countries tax all of the income and gains of their residents irrespective of where that income or gain arises in the world. This is also true for individuals who are both resident and domiciled in the UK, which applies to the vast majority of taxpayers.
A peculiarity of the UK tax system is that individuals who are not domiciled in the UK (nom dom) can choose to not be taxed on income and gains which arise outside of the UK, and which are not remitted to, or used in, the UK. This is called the ‘remittance basis’.
Your ‘domicile’ is basically your home country, often where you were born, or the home country of your father. It is possible to change your domicile and take up a “domicile of choice”, if you move to another country and make the decision to stay there for the rest of your life.
Your citizenship does not determine your domicile, but since 2019, HMRC's view is that as a general rule, if you obtain UK citizenship, you will lose your non-dom status. For further details seer the HMRC residence domicile and remittance basis manual.
Tightening the net
The ability to use the remittance basis was tightened up in 2008. Those non-dom individuals who are tax resident in the UK, and want to use the remittance basis to keep their overseas income out of the UK tax net, now have to pay an annual remittance basis charge. The charge varies according to how long the individual has been tax resident in the UK:
- Resident for 7 out of the previous 9 tax years: £30,000 per year
- Resident for 12 out of the previous 14 tax years: £60,000 per year
Non-doms with only a small amount of foreign income or gains (under £2,000 per year) can carry on using the remittance basis for all years without limit.
If you are a non-dom that is a matter of fact, whether you choose to use the remittance basis to shelter some of your income and/or gains from UK tax, that is a clear choice.
We do know that Murty is a non-dom as she has confirmed this. We don’t know whether she has chosen to use the remittance basis, and if appropriate, pay the remittance basis charge to allow her to do this.
Why it matters
Ms Murty owns just under 1% of the shares of Infosys, a company founded by her father. The dividends paid on those shares would have amounted to approximately £11.6m last year.
However, as that dividend income arises outside of the UK, Ms Murty would not pay UK tax on that income if she chooses to use the remittance basis, and the dividends are not remitted into the UK.
That dividend income may well be taxed in the country where it arises (probably India). If Ms Murty chooses not to use the remittance basis she would pay tax on the Infosys dividends in India and in the UK, with the Indian tax being off-set against her UK tax liability on the same income, under the UK/ India Double Taxation Agreement.
Another twist in this tale is the imposition of ‘deemed domicile’ when the non-dom individual has been tax resident in the UK for at least 15 out of the previous 20 tax years. Part years count as whole tax years for this purpose.
Once you are ‘deemed domiciled’ the ability to use the remittance basis to shelter overseas assets, income and gains from UK tax falls away.
We don’t know when exactly Ms Murty became tax resident in the UK, but the clock is ticking towards her becoming deemed domiciled.
One of the biggest advantages for families of non-dom individuals, is that their overseas assets escape UK inheritance tax when the non-dom dies, unless that person has already spent 15 years in the UK and has become deemed domiciled. The trick here is to put the vast majority of those assets in an offshore trust in year 14, where they can potentially escape IHT indefinitely.
However, those with Indian domicile may escape this deemed domicile treatment for IHT only, as the inheritance tax treaty between India and the UK prevents the UK from using deemed domicile on death as a basis of charge. India does not have an inheritance tax.
Ms Murty is reputed to be worth £500m, so on her death the existence of this old treaty clause would save the beneficiaries of her estate £200m, if she meets the qualifying conditions.
Using the remittance basis is not tax avoidance – that is how the rules are written. But it does look bad for your spouse to make this choice when you have just increased the tax that those at the bottom of the income ladder pay (national insurance).
The Chancellor should reform the non-dom rules, and in particular the old UK/ Indian IHT double taxation agreement which overrides the deemed domicile status. But will he do this when the continued existence of these rules is worth so much to his family?
To say there is a conflict of interest would be understating the position.