Is the PM's wife a ‘Non-Dom’? The Truth On Akshata Murty's Tax Bills
During Rishi Sunak’s first PMQs as Prime Minister, the leader of the opposition Sir Kier Starmer asked whether the Prime Minister would abolish the non-domicile tax status, which has been available since the French revolution. This was seen as a reference to reports that had surfaced when Sunak was Chancellor that his wife, Akshata Murty, saves ‘millions of pounds' in tax because she claims non-domicile (non-dom) status. Sunak has acknowledged his wife’s tax status, but clarified that any tax arrangements were legal, telling reporters earlier this year that, "every single penny she earns in the UK she pays UK taxes on...and every penny that she earns internationally, for example in India, she would pay the full taxes on that”. Later, it was reported that Murty would be paying UK tax on her ‘worldwide earnings’.
What is a Non-Dom?
Non-Domicile status was first introduced under King George III in 1799 and refers to residents of the UK who consider another country to be their permanent home (domicile).
Although many non-doms were born abroad and are in the UK temporarily, people who were born in the UK and who live in the UK all year can also claim non-dom status if their parents consider another country to be their permanent home. In order to establish non-dom status, HMRC requires taxpayers to provide evidence about their background, lifestyle and future intentions, such as where they own property or intend to be buried. To state the obvious – professional advice should be taken as this is a complex area and can be dependent on individual circumstances.
Non-doms still pay UK tax on UK earnings but do not need to pay UK tax on foreign income such as rents, bank interest and dividends if they claim the remittance.
Is Akshata Murty a Non-Dom?
The initial response provided by a spokesperson to the claims of her status was to clarify that Murty is a citizen of India, the country of her birth and parents’ home. The spokesperson added that India does not allow its citizens to hold the citizenship of another country simultaneously, and therefore according to British law, Ms Murty is treated as non-domiciled for UK tax purposes.
However, this is not correct. Non-dom status largely depends on where a person considers their permanent home to be. Therefore, being an Indian citizen itself doesn't actually make her a non-dom. As to the implication that, as a non-dom, Ms Murty is automatically not taxed on foreign income – in fact, non-doms have a choice as to how they are taxed. Non-doms can opt to be taxed under the ‘remittance basis’ under which they will only pay UK tax on foreign funds remitted (brought in) to the UK. However, many non-doms actually choose to be taxed on their worldwide income on the same basis as ‘regular’ UK taxpayers. This is because a taxpayer claiming the remittance basis is not entitled to the personal allowance (currently £12,570) on their income, even that which is earned in the UK. In addition, after seven years, non-doms who claim the remittance basis need to pay an annual fee of £30,000, rising to £60,000 after 12 years. After 15 years, non-doms will be treated by HMRC as ‘deemed domiciled’ and will be unable to choose to be taxed on a remittance basis. Interestingly, according to statistical data, only approximately 2,000 non-doms are paying the £30,000 charge which implies that from a tax perspective, they have calculated that they are better off not claiming the remittance basis.
What does Mrs Murty gain by claiming the remittance basis?
According to reports, Askshata Murty owns a 0.93% stake in Infosys, an IT company set up by her father in India. Her shareholding is thought to be worth around £700m and it is estimated that she would receive £11.5m in annual dividends from her investment. After taking into account, the double tax treaty the UK has with India, it is estimated that HMRC could claim tax of around £2m a year on that income. As Mrs Murty has had shares in the company since at least 2015, the arrangement may have saved her £15m in UK taxes.
Mrs Murty has now agreed not to claim the remittance basis and to pay UK income tax on her worldwide earnings, however, there is another area where a tax benefit can be had. Under a treaty signed between the UK and India in the 1950s, Indian citizens can still be considered non-doms when it comes to inheritance tax, levied on someone's estate – even if they no longer have non-dom status in the UK. In the 1980s, India abolished inheritance tax, but this treaty was never changed. This means Ms Murty can expect to pay no inheritance tax at all on her father's multi-billion-pound fortune.
If you would like to discuss any aspect of this article, or for any other business or accounting advice, please email Yedidya Zaiden at yedidya.zaiden@raffingers.co.uk or click here to get in touch.