It has emerged that Chancellor Rishi Sunak’s wife, Akshata Murty, claimed non-domicile (or “non-dom”) tax status, meaning that she did not have to pay UK taxes on income earned elsewhere. This revelation has drawn criticism, especially in light of Sunak raising taxes for working households.
Murty has since said she will give up the status and pay UK tax on overseas income. But what is a non-dom? An expert answers our questions.
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, that long. It allows a person who was 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 in UK taxes because they make the bulk, if not all, of their income abroad.
The regime can be used, or sometimes abused, by foreigners, or British citizens, to avoid paying tax altogether. While in principle they are required to pay tax in the countries where income is earned, the fact that they live (and are tax residents) in the UK makes it easier to arrange their affairs and end up paying little or no tax at all.
The result is that many of the wealthiest families living in the UK are not contributing to direct taxation in the UK. The claim is that the system is still useful because these people tend to contribute indirectly, maintaining a small army of servants and service providers, who themselves pay income tax. Non-doms may also pay VAT on expensive goods and services in the UK.
The system was reformed in 2015 and became more complicated. Non-dom is now restricted to 15 years. The reforms effectively shrunk the number of people claiming non-dom status. Now, only the very wealthy tend to do so. Many move out of the UK after 15 years for five years, and then return and claim another 15 years of non-dom.