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Sunak faces pressure over wife’s non-dom status

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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.

7th Apr 2022
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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.   

The choice

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.

Deemed domicile

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.

IHT position

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.  

Sunak’s choice  

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.

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Replies (70)

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By CJaneH
07th Apr 2022 17:09

Do you mean using the remitance basis is not evasion, but a legal route to minimise tax. ie avoid paying more than you need?

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Replying to CJaneH:
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By Justin Bryant
07th Apr 2022 17:13

Yes.

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By Justin Bryant
07th Apr 2022 17:12

"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 the UK. This is called the ‘remittance basis’."

"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."

Well done Rebecca. 100% correct (as usual) and exactly as I've been explaining to the usual suspects here:
https://www.accountingweb.co.uk/any-answers/sloppy-journalism-again-non-...

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Replying to Justin Bryant:
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By Justin Bryant
08th Apr 2022 09:48

"We do know that Murty is a non-dom as she has confirmed this."

Actually, on reflection there's just one important clarification missing from the above comment in Rebecca's article.

It is always open to HMRC to challenge a taxpayer's assertion that they are non-dom under the facts and law, particularly in cases like this where it seems likely a UK domicile of choice has been acquired due to her marriage to a long term British national and UK resident who presumably intends to spend the rest of his days with his family in the UK and not with her in India or elsewhere**. Perhaps HMRC should open a non-dom status enquiry into her tax returns on that basis*.

*She does indeed claim the remittance basis per the legal and (purportedly true in her case) factual requirement below: see: https://www.bbc.co.uk/news/uk-politics-61034496

**"Under government rules, people can be granted non-dom status - meaning the UK is not considered their permanent home - if they live in the UK but intend to go back to their home country."

See also: https://www.standard.co.uk/hp/front/zac-goldsmith-drops-nondom-status-af...

https://www.bbc.co.uk/news/uk-politics-41879422

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Replying to Justin Bryant:
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By Justin Bryant
08th Apr 2022 11:28

I just read they both have US Green cards, which presumably would be their joint excuse re the above point, but which may cause them bother politically, as the Green Card requires you to make a legal commitment to “make the US your permanent home”.

So they are now caught between a rock & a hard place it seems. HMRC should certainly raise an enquiry and the whole thing stinks somewhat of double standards when you consider the recent NIC increases etc.

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Replying to Justin Bryant:
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By plega
08th Apr 2022 12:31

Justin Bryant wrote:

I just read they both have US Green cards, which presumably would be their joint excuse re the above point, but which may cause them bother politically, as the Green Card requires you to make a legal commitment to “make the US your permanent home”.

More to the point, owning a Green Card means exposure to US taxes on world-wide income. That means her dividends are potentially taxed under three jurisdictions. There is a strong case for arguing that her use of Remittance Basis is primarily to simplify her tax affairs and not actually to reduce any tax payments.

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Replying to plega:
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By Justin Bryant
09th Apr 2022 11:00

But you are basically wrong there. See the GC analysis and its interaction with her non-dom status here:

https://www.accountingweb.co.uk/any-answers/you-have-to-love-politicians

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Replying to Justin Bryant:
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By plega
11th Apr 2022 10:57

Yes, I am wrong. I was not aware of the tie-breaker. Thank you.

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By GHarr497688
07th Apr 2022 17:28

Lost for words.....

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By Hugo Fair
07th Apr 2022 17:35

Spot on ... in that the pressure is on Rishi (for political and imagined moral reasons), but should not be on his wife (who appears to be following all the rules).

What we don't know (and why should we) are:
1. "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" ... which might mean very little extra tax receipts for the UK;
2. Conversely, it's hard to police the concept of non-remittance when many things can be paid for via a plethora of international platforms - especially if your wealth is dwarfed by your super-rich father who has money & contacts all over the globe.

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By Winnie Wiggleroom
08th Apr 2022 07:27

Excellent summary, just one thing that gets my goat - "Using the remittance basis is not tax avoidance – that is how the rules are written"

It is avoidance, it is not evasion. HMRC and the media confuse these. She has made a choice to use the law to avoid paying tax that otherwise she would have otherwise paid. IMO your sentence should have read "It is not a tax avoidance scheme"

Please correct me if I am wrong but there is a big difference to the two, and whilst I agree with the other thread that the media are lazy, the headlines about her "avoiding" tax are this time correct, by any definition she has legally avoided paying tax, absolutely nothing wrong with that.

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Replying to Winnie Wiggleroom:
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By AndyC555
08th Apr 2022 16:01

I'm curious. Would you consider saving in a pension - rather than in a non-taxed advantaged structure - 'tax avoidance'?

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Replying to AndyC555:
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By Rgab1947
08th Apr 2022 17:23

Yes

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Replying to AndyC555:
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By Rgab1947
08th Apr 2022 17:23

Yes

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By ireallyshouldknowthisbut
08th Apr 2022 09:08

The bigger question of course is why this status still exists who seems to only protect the extremely wealthy from UK taxes.

Sunak could change it, but he has a huge vested interests not to, as have previous chancellor's though the healthy "donations" (they are not bribes of course they are not) to the Conservative party such as Lord Ashcroft*

There is an argument it would lower taxes, as rich non-doms would not come to the UK, and it might be true for some, but for the majority of people living in the UK or not the UK is choice, the tax tail is not wagging the residence dog very hard. If people want to live in a lower tax jurisdiction there are plenty to choose from.

*Of course he was not Lord then. After he paid the £10 million he was made a lord once he renounced his non-dom status. The £10 million that wasn't a bribe to be clear.

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By SteveHa
08th Apr 2022 09:18

Quote:
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.

BBC News today suggests that she has paid the RBC of £30,000. Whether or not the BBC is accurate is a different matter, though I'm sure the record will be corrected if it's wrong.

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By jonharris999
08th Apr 2022 09:33

Excellent summary, which should be on the front page of The Guardian this morning instead of the old rubbish that is on there.

This is a political dilemma, not a tax one: Is it reasonable for one of the top 4-5 ministers to be married to a non-dom? Does it matter to us that those dividends are being taxed in India, not here?

All the political noise and ill-informed nonsense obscures these interesting and intricate questions.

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Replying to jonharris999:
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By Justin Bryant
08th Apr 2022 11:04

I have seen no evidence that the dividends (paid into an offshore back account of course) are taxed in India. Other than WHT (potentially reduced under the DTA) why would they be, as she is not resident there (unless they have a worldwide citizen tax like the US)?

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Replying to Justin Bryant:
By ireallyshouldknowthisbut
08th Apr 2022 12:06

@Justin, the dividends might still be taxed in India. Non-residents can have Indian source dividends taxed there (at least once of my clients does) and this would of course give you a credit in the UK. Dunno if these are Indian source mind.

What I can tell you is if it was the other way around, and was an ordinary Indian resident, her worldwide income would be taxable in the India.

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Replying to ireallyshouldknowthisbut:
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By Justin Bryant
09th Apr 2022 11:04

I confess I don't know anything about Indian tax, but the point is she is almost certainly better off in tax terms all things being equal under the remittance basis (which is based on a rather suspect non-dom assertion in my view now that RS has renounced his GC).

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By RogerMT
08th Apr 2022 09:50

Tories caught out flaunting why Brexit really happened? Crikey! :)

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By geoffmw1
08th Apr 2022 10:02

Rebecca, if you have not already done so , may I suggest that you send thjs article to all editors and financial editors of all the UK national press and to the TV news channels with a request for early publication. You have made some important points which clarify the subject.

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By North East Accountant
08th Apr 2022 10:03

No one can choose where they are born and the UK has had these rules long before Rishi became Chancellor so what's the big issue.

Every single Chancellor has a conflict of interest about something......it's just this time the sums are a little bigger.

The whole tax system is growing more complex by the day but I see no signs of anyone getting to grips and tackling it.

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By mkowl
08th Apr 2022 10:03

Thanks for the article - it should be cut and paste to every journalist and indeed the "experts" on Twitter. But yes it should be changed, I would still like a temp non dom status provision, say 3- 5 years max so that business investors and their senior teams can re-locate to the UK to set up and move forward business without being hammered on worldwide income. But it should never have been permitted as a long term option. The irony is how much the Russian oligarchs now being sanctioned would have utilised this.

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Replying to mkowl:
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By dwgw
08th Apr 2022 15:06

"Hammered"? Don't you just mean "taxed"?

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By Self-Employed and Happy
08th Apr 2022 10:04

Imagine tax rules being written by normal people with no agendas?

I bet they'd be a lot simpler and would yield a lot more for the treasury, HMRC do agents and tax payers a disservice by having shocking levels of service, the government don't use HMRC properly to collect tax fairly and equitably.

If HMRC was a private sector company it would have already been put out of its misery, we need complete reform of the tax system by professionals that actually have worked in the field not the continued line of career politicians that actually haven't worked a proper job facing the public in their lives and a civil service too scared of hard work.

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By mhkay
08th Apr 2022 10:21

Using the word "admitted" carries a suggestion of wrong-doing. "Acknowledged" would be better.

In my view it is entirely appropriate that someone who has inherited shares in an Indian company from her Indian father and receives dividends from India should pay tax on those dividends to India, not to the UK. Render to Caesar what is Caesar's, and in this case Caesar is India, not the UK.

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Replying to mhkay:
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By More unearned luck
08th Apr 2022 11:17

I know nothing about the Indian tax system, but Murty may well pay tax in India on the dividends. The UK/India treaty gives India the right to tax the dividends albeit at either 10% or 15%. But I can't see any moral reason why she should not then pay the difference between the UK probable rate of 38.1% and the Indian tax, other than her right to use the remittance basis, if she is really nondom .

But I doubt that she is really nondom as it would mean that her husband is truly a here today gone tomorrow politician.

Have you wondered what she has done with six or seven years of net dividends? It is unlikely that she has brought them into the UK to spend. I expect that she has invested them in a tax haven together with all of her other investments she held before she moved to the UK and has not paid tax anywhere on the income and gains arising on those investments.

If she doesn't mix income/gains and capital she can bring all the capital money she wants into the UK tax-free.

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Replying to mhkay:
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By dwgw
08th Apr 2022 15:09

What exactly is "appropriate" about that?
The logic of that appropriateness is that anyone with foreign investments ought to be completing an array of tax returns in whatever jurisdiction their investments reside.
It makes for more sense, and is far simpler, to use personal residence as the basis for all taxation.

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Replying to mhkay:
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By Rgab1947
08th Apr 2022 17:28

She lives in the UK and is married to a British citizen who is the Chancellor if Britain.

She morally should pay the tax in the UK.

A tax avoiding wife of a chancellor imposing taxes on the lowest paid

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Replying to Rgab1947:
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By geoffmw1
08th Apr 2022 19:08

They spend money in the UK which also helps the UK economy through income and profits being taxed by those of whom they are customers

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Replying to geoffmw1:
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By AS44NG
09th Apr 2022 13:25

That's ok then? Can we all dodge taxes on that basis?

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By Ammie
08th Apr 2022 10:52

Nothing illegal here. Albeit morally unstable.

We would all do the same, I'm sure.

There is good reason why our governors have passed these tax laws. I shall leave it to ones imagination before I get myself in trouble!

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By NeilW
08th Apr 2022 11:24

I hate the argument of 'moral duty'. There is no moral duty to pay any more than Parliament has requested. When parliament passes tax law it decides what is moral and what isn't. If the individual can't work that out, then that is the fault of Parliament for passing complicated tax law not the person. (Tax avoidance being nature's way of telling us that our tax law is too complicated).

You may not like what Akshata is doing, and you have the right to lobby your MP to ask that it is changed.

But to attack her personally, and her husband is just an attempt at Mob Rule.

If we don't like the rule, get it changed. Via the correct process - an Act of Parliament.

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Replying to NeilW:
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By Winnie Wiggleroom
08th Apr 2022 12:33

NeilW wrote:

I hate the argument of 'moral duty'. There is no moral duty to pay any more than Parliament has requested.

Couldn't agree more - as soon as someone says something is not morally acceptable what they are actually saying is that their own version of morality is superior to someone else's. That may or may not be true, everyone has their own line they will not cross. But that is why we have something called the law, that line is immovable.

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Replying to Winnie Wiggleroom:
By ireallyshouldknowthisbut
08th Apr 2022 12:44

The issue is not the law, that is clear, the issue is that the very man making the law or who could change the law has close family benefiting from it.

it is quite right to question if the law is a good law, or one retained due to the power and influence over politicians, and indeed which politicians are in power.

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Replying to ireallyshouldknowthisbut:
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By Ian McTernan CTA
08th Apr 2022 15:21

He didn't make that law, it's been in existence for a long time.
The left wingers are trying to make it sound like Sunak is personally responsible for the law and also that he can tell his wife to do...

Whether it is a good law or not depends on the equation of whether it's an overall benefit to the UK in terms of investments made by non-doms into UK which in turn increase tax revenue/charity donations/general spending.

One investment of £1bn creating many jobs would far outweigh any perceived tax loss from a few million in dividends which already have withholding tax on them..

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Replying to Ian McTernan CTA:
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By dwgw
08th Apr 2022 16:49

Ah, the old 'trickle down' chimera.

Nobody still believes that, do they?

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Replying to Winnie Wiggleroom:
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By Rgab1947
08th Apr 2022 17:40

I try, really try to hold people who rule me to a higher standard. So morally she, the wife if a taxing chancellor, should pay tax in the UK and not use her wealth to avoid it whilst the poor sod at the bottom of the pile must pay more tax to satisfy her husband's need to balance the books.

It's just plain wrong even if legal.

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Replying to NeilW:
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By dwgw
08th Apr 2022 15:16

But that's exactly the point. I would agree with you, were it not for the fact that she's married to the very person most capable of changing the rules. The Chancellor would be the reformer, but he won't be when he's so heavily conflicted.

The moral duty is the Chancellor's, not his wife's. He should have recognised the conflict of interest.

These archaic, anachronistic and unnecessarily complicating rules ought to be scrapped, but Sunak won't do it.

What we are witnessing though, is the sinking of any hopes Sunak had of becoming Prime Minister. My bet is he'll leave politics soon after he leaves No.11. He was popular doing the easy handing out money stuff, but he's been exposed as hopelessly out of touch and politically inept once the going got tough.

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Replying to dwgw:
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By AS44NG
09th Apr 2022 13:27

".. but he's been exposed as hopelessly out of touch and politically inept once the going got tough."

Don't they all?

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Replying to NeilW:
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By Open all hours
08th Apr 2022 16:33

Spot on. Does a lottery winner have a ‘moral duty’ to donate to the local hospital? Does a contractor with a fixed price job which comes in better than expected have a ‘moral duty’?
Whose moral code would we use anyway? a) What we guess the treasury believe? B) HMRC? c) Our own? d) The clients? e) Twitter poll?

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Replying to NeilW:
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By Justin Bryant
09th Apr 2022 11:15

You and 99.99% of people have missed the key point here. Her non-dom status was simply not sustainable on the facts (given RS recently renounced his GC which was just a fig leaf argument anyway to support her non dom status i.e. her not acquiring a UK domicile of choice despite her establishing a very much UK-based family etc.). That's why late yesterday she threw in the towel as she knew the game was up.

https://www.bbc.co.uk/news/uk-politics-61045825

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Replying to Justin Bryant:
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By Paul Crowley
09th Apr 2022 19:02

"Mr Sunak has accused political opponents of "smearing" his wife to get at him.

He has also said she is entitled to use the non-dom arrangement as she is an Indian citizen and plans to move back to her home country in the future to care for her parents."

Her parents can afford proper professional care
What exactly does Sunak thik wife will do?

I will believe volunteering for tax will be credoble only when the money hits the HMRC bank account

And that will be such a long wait with no end ever

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Replying to Justin Bryant:
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By Justin Bryant
14th May 2022 09:57

This tax Twitter chap make the same point as me:

"Dan Neidle
@DanNeidle
·
Apr 7
And it looks like this is Mrs Sunak’s rationale for Indian domicile not being lost.

Seems a reasonable technical position to take. But presumably means the Chancellor is also planning to leave the UK in say 10 years. Which is surprising."

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By Rozzo52
08th Apr 2022 11:23

Non Dom tax rules need to be tightened up even more. So should IHT be tightened up for Non Residents domiciled in the UK. Big Tech companies are also fleecing UK taxpayer using remote working and outsourcing by employing mostly in low earning economies like India and charging Western consumers top dollar and making their owners billions at expense of UK taxpayer tucked away in offshore banks. In essence huge wealth transfers are taking place from the west via our liberal and generous tax rules and laws.

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Replying to Rozzo52:
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By plega
08th Apr 2022 14:18

Rozzo52 wrote:

Non Dom tax rules need to be tightened up even more. So should IHT be tightened up for Non Residents domiciled in the UK.

Currently, anyone domiciled in the UK is liable for IHT on their estate, irrespective of where they are resident. So what did you have in mind ?

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By ianthetaxman
08th Apr 2022 11:27

The RB probably isn't something that the man on the street would be aware of, except for maybe recalling some heady tales of rock stars leaving the UK for tax reasons (or possibly if they were a fan of The Hitchhikers Guide To The Galaxy).

What we don't actually know is whether anything has actually been remitted? I mean, all the press seems to want to rant about is that Mrs Sunak has taken this sneaky route to avoid paying tax in the UK, but has she? Do they live of his meager earnings alone, or does she bung him a few quid every now and then from the offshore account?

A few years ago I acted for a close relative of the then Chancellor, who was terrified that they may inadvertently do something that could look bad for their relative, even though the chances of that happening were almost nil.

The world shouldn't be allowed private access to a person's financial affairs by default, but I bet that Mrs Sunak's tax advisor is sharpening their pencil ready for the 2022 return, being very careful to get the full picture...

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Replying to ianthetaxman:
By Charlie Carne
08th Apr 2022 15:02

ianthetaxman wrote:
The RB probably isn't something that the man on the street would be aware of, except for maybe recalling some heady tales of rock stars leaving the UK for tax reasons (or possibly if they were a fan of The Hitchhikers Guide To The Galaxy).

I recall that Hotblack Desiato (the mega-rich rockstar of Hitchhiker's Guide to the Galaxy and not the high street estate agency of the same name based in Islington) spent "a year off dead for tax reasons" rather than using the Galactic Remittance Basis, but any reference to HHGG is always welcome!

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Replying to charliecarne:
By ianthetaxman
11th Apr 2022 10:30

I wonder if there is an Islington flat above that estate agent, where a party was once held...

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