Once again, tax has been making the news with the Chancellor’s wife, Akshata Murty, dominating headlines as a result of her non-domicile status.
The quality of the reporting I have come across on this topic, so far, has been poor and shows a distinct lack of understanding of the tax system. Whatever your views on non-domicile tax laws, it is absolutely not what Kier Starmer, and Angela Rayner have called a ‘scheme’.
Domicile is difficult to explain; it has nothing to do with a person’s residency, so where a person lives does not determine domicile. Your domicile is, effectively, where your DNA belongs. Which country do you consider as home? With which country do you naturally affiliate with? Where is your heart?
The legislation for this has probably been around for as long as income tax itself. The law says that, at birth, you acquire the domicile of your father.
In this case, Ms. Murty’s father has an Indian domicile, so she acquired an Indian domicile at birth. It is not like a footballer choosing to play for a country because his parent was born there – she had little choice in the matter.
Your tax domicile is like a ball and chain; it is very hard to shake off. I accept Ms. Murty has lived in the UK for some while now, but what would happen if she was widowed or divorced? Would she still stay here? That is the relevant test for domicile.
The press articles all said, “this means she does not pay tax in the UK on her non-UK income.” This is correct, but only if she does not bring the income to the UK.
Non-domicile and remittance basis
A non-domicile is allowed to elect to be taxed on the remittance basis, so this is the element Ms. Murty did have a choice over. This means they would pay UK tax on all their UK income and on foreign income brought to the UK.
The tax is due whenever the income is remitted and could be many years after initial receipt. The definition of remittance is very wide and includes goods and assets, not just bank transfers.
After 7 years of being a UK tax resident, a non-domicile must pay £30,000 a year to be allowed to use the remittance basis. After 12 years of being UK resident, this increases to £60,000 per annum. For many non-domiciles, it is therefore cheaper to pay tax on their worldwide income.
After 15 years of UK residency, it is not possible to elect to use the remittance basis any longer. The individual, at this point, acquires a ‘deemed domicile’ status, but note that this does not affect the actual domicile.
Non-doms contribution to economy
So, whatever your views, Ms. Murty has done nothing wrong under existing tax legislation. The legislation was debated during the period of the last labour Government, but even the notorious tax fixer Gordon Brown didn’t stop it.
One reason for this is that the last detailed Government report showed that non-domiciles contributed hugely to the British economy in terms of taxes and investment and, without some tax breaks, would simply relocate elsewhere.
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*Any opinions expressed are those of the author and do not necessarily reflect those of George Hay Partnership LLP or its clients.