News articles about the tax affairs of the Chancellor Rishi Sunak’s wife have thrown the spotlight on non-dom tax status.

Details of Akshata Murty’s non-domicile status appeared in the media this month.

As a non-dom UK resident, Ms Murty isn’t required by law to pay UK taxes on her overseas income. But after the news broke, she announced she would start paying British taxes on all her worldwide income, insisting the decision was voluntary.

Who is Akshata Murty?

Born in India, Ms Murty is the daughter of the billionaire entrepreneur Narayana Murty. Mr Sunak married Akshata in 2009 after they met at Stanford University in the U.S.

Ms Murty earns money from shares in Infosys, the Indian IT giant founded by her father. She has Indian citizenship and is treated as non-domiciled for UK tax purposes.

What is a non-dom?

Non-dom (or non-domicile) is a legal status for people who originate from jurisdictions other than the UK. Furthermore, for tax purposes, non-dom defines British tax status for UK residents whose permanent home (or domicile) is outside the UK.

Your domicile is usually the country your father considered his permanent home when you were born (or your mother if they were unmarried). The rules are very complicated and you can acquire a domicile of choice in the UK if you choose to live here permanently or indefinitely.

Those who are able to retain non-dom status after coming to the UK must still pay UK tax on UK earnings but don’t have to pay UK tax on overseas income.

The remittance basis

If you’re non-dom legally and choose not to pay tax in the UK on your foreign earnings, for tax purposes, you must pay an annual remittance basis charge, which is:

  • £30,000 if you’ve been resident in the UK for at least seven of the previous nine tax years
  • £60,000 if you’ve been here for at least 12 of the previous 14 tax years
During the first seven years of becoming UK resident, you can still apply the remittance basis rules, but there is no charge. Instead, you give up your income tax personal allowance and capital gains tax annual exemption in return for only taxing your UK source income.

Changes to non-dom tax rules

Since April 2017, you can no longer claim non-domicile status if you’ve been a UK resident for 15 out of the previous 20 years, or if all the following apply:

  • You were born in the UK
  • You have a UK domicile of origin
  • You were resident in the UK for 2017 to 2018, or later years

However, you don’t have to pay UK tax on your foreign income or gains if both the following apply:

  • The overseas earnings are less than £2,000 in the tax year
  • You don’t bring that money into the UK

Our thoughts

The Chancellor’s wife hasn’t broken the law. She is entitled to claim the remittance basis (RB) by paying the RB charge for 15 tax years after becoming a UK resident.

Is 15 years morally too long for someone to be in the UK and still have access to beneficial rules for worldwide income? This is undoubtedly a question of opinion and, ultimately, an issue for the lawmakers to decide.

The remittance basis rules are sensible for temporary residents in the UK, because applying tax treaties to foreign income and gains can be cumbersome and costly in professional fees.

The rules were misused for many years but have been strengthened significantly. Will the recent news articles lead to further tightening of the rules and a reduction in the years spent in the UK before becoming deemed domiciled? Who knows?

Offshore taxation is an ever-changing world and the news about Ms Murty may escalate changes that may have been planned for a later date.

Our team of UK-based tax advisers have specialist knowledge of non-dom issues and offshore tax. Call us today on 07813 434195 or email stephanie.churchill@churchilltaxation.co.uk

Steph Churchill

Stephanie Churchill

Managing director & co-owner of Churchill Taxation