Explanation: what is the tax status claimed by Akshata Murty?
What does non-dom status mean and how do you claim it? Non-domicile, or non-dom, is a British tax status that has been available since the French Revolution – yes, for that long. It allows someone born in another country, or if their parent is from another country, to pay tax in the UK only on their UK income. The system has allowed wealthy foreign immigrants to enjoy all the benefits of living in the UK, while paying very little UK tax, as they earn most, if not all, of their income abroad. ‘foreign.
The scheme can be used, or sometimes abused, by foreigners or UK citizens, to avoid paying tax altogether. While in principle they are liable to pay tax in the countries where the income is received, the fact that they live (and are tax residents) in the UK makes it easier to organize their affairs and end up paying little or no taxes at all.
The result is that many of the wealthiest families living in the UK do not contribute to direct UK taxation. It is claimed that the system is still useful because these people tend to contribute indirectly, maintaining a small army of servants and service providers, who pay the income tax themselves. Non-doms can also pay VAT on expensive goods and services in the UK.
The system was reformed in 2015 and has become more complicated. Non-dom is now limited to 15 years. The reforms effectively reduced the number of people claiming non-dom status. Now only the very wealthy tend to do so. Many leave the UK after 15 for five years and then come back and claim another 15 years of non-dom.
Why do people claim non-dom status? The only reason I can see for people claiming non-dom status instead of being an ordinary UK tax resident is if they calculate that they will end up paying less tax on their worldwide income. Either because taxation in their home country (or where the income is earned) is far less than in the UK, or because they can avoid paying tax.
Murty is said to earn £11.5million in annual dividends from his stake in his father’s India-based IT business. Her non-dom status means she doesn’t have to pay UK tax on that income.
A person without non-dom status earning that much in the UK would have over the past year paid nearly £5million in UK income tax plus an additional £250,000 in contributions to national insurance. Indeed, her husband’s National Insurance boost would have cost her household around £150,000 extra in taxes had she not declared herself a non-dom.
Does your nationality or citizenship determine your non-dom status? A statement from Murty’s spokesperson suggests that being an Indian citizen is what translates to her non-dom status: Akshata Murty is a citizen of India, the country of her birth and home. of his parents. India does not allow its citizens to simultaneously hold the citizenship of another country. Thus, under UK law, Ms Murty is considered not domiciled for UK tax purposes. She has always paid and will continue to pay UK tax on all her UK income.
If Murty lives in the UK, she is UK resident for tax purposes. The fact that she is an Indian citizen is irrelevant – non-dom status is a choice. The mention of her Indian citizenship provides justification for claiming non-dom status, perhaps suggesting that she sincerely wishes to return to India at some point in the future.
So, non-dom status is actually a statement that you intend to move (or return) to where you live? Although not a binding commitment, claiming non-dom status can be considered an effective indication that you plan at some point in the future to return to where you live. Of course, the taxpayer can change their plans and can only claim non-dom status for such a long time.
Once a person has been in the UK for seven out of the last nine tax years, they must pay a £30,000 fee to retain their non-dom status (as Murty does). After 12 of the last 14 tax years, the charge is £60,000. And once a person has lived in the UK for 15 years, they automatically become domiciled. Murty reportedly 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. Can HMRC challenge someone’s non-dom status? Her Majesty’s Revenue and Customs (HMRC) can’t do anything about it, only parliament can. Just as George Osborne, when he was Chancellor, reformed the system in 2015, the only person who can change the system is the current Chancellor of the Exchequer.
From a tax point of view, this story is quite simple. The problem is not the tax per se, but the implication of taking advantage of this archaic (albeit reformed) rule by originally understanding that you will or could “go home” at some point.
When a feature like this is exploited by none other than the Chancellor’s spouse, it contributes to the idea that the UK’s tax haven features are intentional government policy. 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.