Thanks to revelations regarding Chancellor Sunak’s wife, headline’s about her ‘non dom’ status are everywhere. But what does this actually mean and why are people angry about it?
Non domiciled for tax purposes
‘Non dom’ is short for ‘non domiciled’ and is only a descriptor of your UK tax status. It doesn’t define your residency, nationality or citizenship – but all these things can influence your non-dom position.
‘Domicile’ means ‘home’ – so if you’re non domiciled, it means that your permanent home is outside the UK. If your permanent home is not in the UK, then you’ll only have to pay tax on any money you earn within the UK – not your global income.
There are 2 different ways you can become non domiciled for UK tax purposes:
- Domicile of origin: HMRC describes this as: “Your domicile’s usually the country your father considered his permanent home when you were born.” The country where you or your father were born.
- Domicile of choice: You have chosen to live in another country for an undetermined length of time.
2017 amendment to the non dom rules
The big 2017 change to the non dom rules is that you can’t claim non dom status if you’ve been a UK resident for 15 of the last 20 years.
You are also now exempt from being ‘a non dom’ if you meet all of these criteria:
- You were born in the UK
- You domicile of origin was Britain
- You’ve been UK resident for a minimum of 1 year since 2017.
What are the non dom tax rules?
There are different non dom tax rules depending on what you earn outside the UK.
If you earn less than £2,000 per year and don’t have the money paid into a UK bank account, you don’t’ need to tell HMRC or pay any UK tax on your overseas earnings.
Income over £2,000 mean that you’re into different non dom rules. For a start, you need to tell HMRC using the self assessment tax return system. Then you can either pay UK tax on these earnings (and potentially be able to claim the tax back), or you can claim the ‘remittance basis’.
Remittance basis means that you only pay UK tax on the income you bring into the UK but there are consequences. You’ll lose any Income Tax and Capital Gains Tax allowances, and you’ll have to pay an annual fee. This charge is £30,000 for non doms who’ve lived in the UK for a minimum of 7 of the last 9 tax years. And this rises to £60,000 if you’ve been in Britain for 12 of the last 14 tax years.
All of HMRC’s non dom tax rules can get quite tricky in practice. HMRC is there to help and its wise to get professional support from a tax agent or accountant.
How many people are non domiciled for tax purposes in the UK?
HMRC’s published statistics state that 75,700 people claimed non dom status in the 2019-20 tax year. That’s 2,900 less than the previous tax year.
A study completed by Warwick University, the Economic and Social Research Council and UKRI came to some interesting conclusions about UK non doms. They investigated individuals who had been non dom since 1997 and those who were non dom in 2018. Of these people:
- Over 93% were born outside the UK
- Of those who earned £5m+ per year, 3 in 10 claimed non dom status. Of those who earned under £100,000, only 3 in 1,000 claimed this status.
- 1 in 10 adults living in Kensington and the Cities of London and Westminster had been, or currently are, non dom.
- Most non doms are from USA, India and Western Europe. But there’s been a big increase in non doms from former Soviet states and China since 2001.
Why are people so annoyed about Rishi Sunak’s wife being a non dom?
Chancellor Sunak and his wife Akshata Murty are millionaires. She has legally claimed non dom status. And her spokesperson has said that she “has always and will continue to pay UK taxes on all her UK income”. And she has paid the annual £30,000 charge to avoid her overseas earnings being taxed in the UK.
Murty has a 0.9% stake in her father’s company Infosys, which has its headquarters in India. If she was liable for UK tax, she would pay 39.35% on her dividend earnings from this income. But she doesn’t. Because she’s legally registered as having non dom status for UK tax purposes.
People are angry because this has come out as her husband freezes income tax thresholds and increases National Insurance Contributions for the majority of UK taxpayers. As we continue through a pandemic, deal with the economic impact of Brexit, face massive cost of living rises and are increasingly reliant on very beleaguered support structures.
It feels to many people like the person making the tax rules doesn’t think they apply to him and his family.