Over the past week I have been asked by many journalists to comment on the tax affairs of Akshata Murty, the wife of Rishi Sunak. In this article I clarify the UK tax rules which underpin the controversy over her non-dom status.
Domicile is matter of choice.
There is an expression, “home is where your heart is”, and this is particularly the case when choosing the country of your domicile. The wife of the Chancellor Rishi Sunak, Ms Akshata Murty, has made it clear that her permanent home is not in the UK as she claims non-dom status. In a recent statement, her spokeswoman said that Ms Murty “is a citizen of India, the country of her birth and parent’s home.” Further, her spokeswoman said “India does not allow its citizens to hold the citizenship of another country simultaneously. So according to British law, Ms Murty is treated as non-domiciled for UK tax purposes.”
A UK resident non-domiciled individual, or a “non-dom”, pays tax on UK sources of income and gains, but can elect for foreign sources of income and gains to avoid tax unless they are remitted, used or enjoyed in the UK. This is known as the “remittance basis”. Originally, the purpose of this rule was to encourage outward investment 200 years ago, but now the rule remains on the statute books to encourage wealthy foreigners to become tax resident in the UK. The point is that although they get a tax break, they still make a significant contribution to the overall tax collection. On average wealthy non-doms pay 25 times the tax that the average taxpayer pays, which would not be received if the rule did not exist.
At birth an individual takes the domicile of their father, or their mother if their parents are unmarried. This is known as “domicile of origin” and it stays with the taxpayer the whole of their life unless and until it is replaced with another domicile, a “domicile of choice”. A domicile of choice can only be established if the domicile of origin is abandoned and the individual forms the intention to permanently reside somewhere else and becomes tax resident in that country. Domicile has nothing to do with citizenship and Ms Murty’s statement, which infers that she is a non-dom because she cannot get a British passport without giving up her Indian passport is not the whole story. Acquiring a British passport could evidence the intention to permanently reside in the UK, and thus indicate the acquisition of a domicile of choice in the UK, or it could simply be convenient for travel. Citizenship is only one fact and there may be other factors present to demonstrate on going connections with the country of domicile of origin. Therefore, Ms Murty, even with a British passport, could claim she is not domiciled in the UK, if and only if, she can claim that she does not intend to permanently reside in the UK.
It is a matter of choice, and a taxpayer can elect each year whether to claim foreign domicile or not if it benefits them. It is not always clear cut which option is preferable, as a non-dom claiming the remittance basis must pay the remittance basis tax charge of £30,000 per annum once they have been in the UK for seven years, increasing to £60,000 per annum after twelve years. Nevertheless, non-dom status is not indefinite. Although it is possible to live in the UK for many years, decades even, without intending to live here permanently and thereby establishing a domicile of choice here, rules were introduced in 2017 which deem a foreign domiciliary to be UK domiciled if they are UK tax resident in fifteen out of the last twenty tax years. At which time a non-dom has to pay tax on their worldwide income and gains.
It is not entirely clear whether Ms Murty is deemed domiciled in the UK, in which case she could claim all her personal worldwide income and gains are subject to UK taxes. However, the law allows a foreign domiciliary to establish an offshore trust prior to becoming deemed domiciled, and the tax on foreign income and gains within that trust can be deferred indefinitely until such time as the trustees make a distribution or make benefits available to a beneficiary.
Ms. Murty has tried to quell the questions by trying to issue a clear statement of her domicile position. However, by making statements on an interpretation of law which is not wholly accurate these may lead to further uncomfortable questioning of her tax arrangements.