Over the last few months, there has been a lot of pressure on the Chancellor, Rishi Sunak and his wife, Akshata Murty as a result of their non—domiciled tax status and the suggestion that they have “avoided” paying significant amounts of UK tax as a result of dividends received from her stake in her father’s overseas IT business, none of which is taxable in the UK.

What is a non-dom? 

Domicile is a legal concept, entirely separate from residence. It is possible only to have one domicile at any time however it is perfectly possible to be living in one country and have your domicile in another country.

Broadly speaking your domicile is determined as follows:

• A domicile of origin – you acquire a domicile of origin at birth and under UK law, you acquire your father’s domicile when you are born
• A domicile of choice – A new domicile can be obtained where you settle in a new country permanently or indefinitely.

But why is this important? 

For most tax purposes, this “non-dom” tax status can be claimed for up to 15 years and throughout this period, tax is only paid in the UK on UK source income and gains or foreign income and gains brought into or remitted to the UK – if the offshore monies are retained offshore then no UK tax would become payable – although it should be noted that foreign tax is likely to be due regardless of the UK position.

Although available with minimal cost for the first period of living in the UK, after a non-dom has been in the UK for seven of the last nine tax years, they must pay an annual charge of £30,000 to maintain the status, rising to £60,000 where in the UK for 12 of the last 14 tax years. Once someone has lived in the UK for 15 years, they lose the ability to claim this non—dom status for tax purposes.

The system is heavily criticised for benefiting wealthy immigrants who are able to enjoy the advantages of living in the UK whilst paying little or no money into the tax system. However on the other side, it is argued that the non-dom status is still useful because the individuals in question tend to contribute indirectly, maintaining service providers, cleaners, gardeners etc who themselves pay Income Tax as well as paying VAT on expensive goods and services in the UK.

Coming back to Mrs Murty, although her claims are all completely within the rules of the law, what appears to matter is the moral-standpoint, especially when her husband is tasked with raising taxes (amongst other fiscal measures). It is for this reason that she has now made the decision to pay UK tax on her global earnings despite her current beneficial non-dom tax status in the UK.