A tax expert has argued that Chancellor Rishi Sunak’s wife opted to adopt ‘non-dom’ status, thus choosing to pay less tax in the UK. He also says having the status may suggest someone has long-term plans to leave the country.
In an article for The Conversation, Professor Ronen Palan explained what ‘non-domiciled’ tax status means in Britain and pointed out that the ‘only reason’ anyone would claim the status is to save money. money on payment of tax. It also calculated that Mr Sunak’s wife, Akshata Murty, would have paid an extra £150,000 in National Insurance contributions following her husband’s decision to raise the tax – but would have avoided that cost as a non-dom.
Ms Murty defended her non-dom status on the basis of her Indian citizenship and also promised to pay UK tax on her worldwide earnings in future. But Professor Palan, who advises the Tax Justice Network, says his Indian citizenship doesn’t explain the whole story.
Below are the professor’s 5 key points on the Chancellor’s wife’s controversial tax status. His guide ranges from explaining the principle of no-dom to why Mr. Sunak himself was one of the only people able to challenge his wife’s tax privileges.
Non-dom status explained
Professor Palan writes: “Non-domicile, or non-dom, is a British tax status that has existed since the French Revolution – yes, for so long. It allows someone born in another country, or if their parent is from from another country, to pay UK tax only on their UK income. The system allowed wealthy foreign immigrants to enjoy all the benefits of living in the UK, while paying very little UK tax because they earn most, if not all, of their income abroad.
He goes on to say that many of Britain’s wealthiest residents contribute little to society in direct taxes. But proponents of non-dom status say they contribute indirectly, by purchasing goods and services (and therefore contributing via VAT).
In 2015, the non-dom system was reformed, after criticism in the press. The status is now limited to 15 years.
Professor Palan says the changes have reduced the number of people claiming non-dom status, so only the very wealthy bother to do so. But he said that in practice, after 15 years, non-dom citizens often leave the UK for five years, only to return again and claim another 15 years as a non-dom in the UK.
The ‘only reason’ to claim non-dom status is to pay less tax
Professor Palan doesn’t mince words on the reasons for non-dom status. He says: ‘The only reason I can see for people claiming non-dom status instead of being an ordinary UK tax resident is if they calculate they will end up paying less tax on their worldwide income Either because taxation in their home country of origin (or where the income is earned) is so much lower than in the UK, or because they can avoid paying tax at all. “
He explained that Mr Sunak’s wife, Ms Murty, would earn £11.5million in annual dividends from her stake in her father’s India-based IT business. Her non-dom status means she doesn’t have to pay UK tax on that income.
According to Professor Palan’s calculations, a person without non-dom status in the position of the Chancellor’s wife would have paid almost £5million in income tax in the last year in the UK. He also thinks it would have meant around £250,000 in National Insurance contributions.
Since Mr Sunak announced his intention as chancellor to raise the cost of National Insurance, it could mean more savings for non-dom residents. Professor Palan thinks non-dom status could have saved Ms Murty – and Mr Sunak’s family – around £150,000 extra in National Insurance contributions.
Ms Murty has since said she doesn’t want her tax status to become a ‘distraction’ for her husband. And she has promised to pay UK tax on her worldwide income in the future.
But Professor Palan’s figures show why people have become animated on the subject. Especially at a time when the cost of living is forcing many UK taxpayers to struggle.
“Non-dom status is a choice”
A statement from Murty’s spokesperson this week suggested that being an Indian citizen is what resulted in her non-dom status. It read: “Akshata Murty is a citizen of India, the country of her birth and the home of her parents. India does not allow its citizens to simultaneously hold the citizenship of another country. So according to British law , Mrs. Murty is treated as non-domiciled for tax purposes in the UK. She has and will continue to pay UK tax on all her UK income.”
However, Prof Palan wrote in his Conversation post: “If Murty lives in the UK, she is UK tax resident. It is irrelevant that she is an Indian citizen – non- dom is a choice.”
Non-dom status may suggest plans to leave the UK
Professor Palan admits Ms Murty’s Indian citizenship offers some defense of non-dom status if she intends to return to India in the future. But that in itself would be a big reveal.
If Ms Murty wants to return to India, where will that leave Mr Sunak – the British Chancellor and potentially a future Prime Minister?
Professor Palan added: “While not a binding commitment, claiming non-dom status can be seen as an effective indication that you are at some point planning to return to where you live. Of course, the taxpayer can change their plans and can only claim non-dom status for so long.
“After someone has been in the UK for seven of the last nine tax years, they have to pay a £30,000 fee to keep their non-dom status (as Murty does). After 12 of 14 last tax years the charge is £60,000. And once someone has lived in the UK for 15 years they automatically become domiciled. Murty is said to have moved to the UK in 2015.”
Sunak backed that up in comments to The Sun, saying, “That’s where her family is… that’s where she, you know, will ultimately want to go and take care of her parents as she gets older. ‘they are getting old.
Rishi Sunak “the only person” who can challenge non-doms
Professor Palan ended his article by suggesting that Rishi Sunak was potentially one of the only people who could have taken action against non-doms like his wife. He said: “Her Majesty’s Revenue and Customs (HMRC) can’t do anything about it, only parliament can. Just like George Osborne when he was Chancellor reformed the system in 2015, the one person who can change the system is the current Chancellor of the Exchequer.”
Some people who are struggling to pay the bills right now might be happy to have a say in how much tax their other half pays. But this is not a luxury accessible to most Britons.
This explains why ordinary taxpayers followed this story. And tax experts like Prof Palan make it clear that Ms Murty’s tax arrangements – while not at all wrong under the law – were a choice.
As the professor concludes: “It doesn’t look good and gives the impression that in Sunak’s case the UK has appointed a cat to look after the milk.”