The LDV quick guide to non-domicile

So, Akshata Murty is non-domiciled for tax purposes. What does this mean, and how does it work? Luckily, the information is readily at hand…

Domicile is obtained in one of three ways;

  • origin – normally, your place of birth
  • dependence – where the law ascribes domicile to an individual because of that individual’s lack of legal capacity and legal dependence upon another person
  • choice – acquired by physical presence in another territory and the intention to remain in that territory permanently or indefinitely

So, in Akshata Murty’s case, her domicile of origin is India and, unless she indicates her wish to be domiciled in the United Kingdom, she can retain her status as being domiciled in India for the time being, subject to any finding that, by dint of the decisions she takes, she is deemed to have elected for a different domicile by choice.

And, if this is to be challenged, the onus is on HM Revenue & Customs to prove that she has, effectively, acquired a domicile by choice. There are, obviously, rules, and processes in place. Indeed, there is an entire guidance manual on the subject. Admittedly, you probably wouldn’t want to be the tax official tasked with launching such an enquiry…

But the existence of a home in another country, and strong family links to India, would suggest that her long-term intention is not to remain in the United Kingdom. Doubtless some very astute international tax experts are keeping a close eye on the matter on her behalf.

Party policy, as passed in 2013, doesn’t actually call for the abolition of non-domicile status. Instead, it suggested the following reforms;

  • the Remittance Basis Charge should become payable once a non-dom has been resident in the UK for tax purposes for four of the preceding six years
  • the charge should be increased to £50,000 per year
  • alignment of the domicile definition for income tax with that for inheritance tax so that anyone resident in the UK for seventeen out of the past twenty years would become deemed domiciled for income tax purposes (as well as Inheritance Tax) and unable to claim the remittance basis

Indeed, some of these came to pass (in part) as a result of reforms in 2017.

Labour Party policy, as expressed in their 2019 manifesto, was to scrap non-domiciled status altogether, which does at least have the merit of being simple to understand.

So, is it time for the Liberal Democrats to revisit their tax policy?

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14 Comments

  • Brad Barrows 11th Apr '22 - 3:49pm

    Perhaps a good way forward is to campaign for the law to be changed so that a person is ineligible for membership of either House of Parliament is they or their partner is, or becomes, non-Dom.

  • Andrew Toye 11th Apr '22 - 9:06pm

    I have a relative resident in another country who has been advised that he cannot stay in the UK for more than 3 months in any year or he would be liable for UK taxes. Now we hear that Ms Murty lives here more or less continuously with her husband. Have either my relative, or Ms Murty, been mis-informed about their responsibilities?

  • Tristan Ward 11th Apr '22 - 9:07pm

    I have an idea that some body resident in the UK may only claim nonDom status and pay the relevant remittance to claim non dom status for 15 years in sucesion before being automatically deemed to be UK domiciled or leave the country.

    Perhaps someone with more knowledge than I have can comment.

  • Tristan Ward 11th Apr '22 - 9:13pm

    @Andrew Toye

    I think that your relative has probably been advised that he may become resident for tax purposed if s/he is here more than 3 months. (Its not a hard 3monrh test there are other variables involved). This is different from non-dom status claimed by Ms Murty.

    My bet is that Ms M pays UK income tax VAT etc to the extent she recieves UK income as a resident but not UK tax on her non- UK income since she is not domiciled here. Bit I do not claim to be an expert in this.

  • It’s actually really confusing, not least because of the various tax treaties between different countries. I have lived outside the UK for almost 7 years, haven’t been in the UK for over 2 years (because of COVID) but still get confused about this.

    Surely a more simple solution would be to pay tax on income where it is earnt – so income earnt in the UK is taxed in the UK, income earnt elsewhere is taxed based on the regime of that country. The definition of “where it is earnt” might have to change based on the type of income; so income from property rental in the UK is classed as income in the UK, but so would work done online by an individual in the UK for a company based in the US.

    Someone’s now going to tell me why that’s unworkable….

  • Not increasing universal credit was a huge mistake, affecting millions of people’s lives. What Sunak’s wife does with her tax plan is not what we should be using to judge the Conservative government. I imagine many of the super rich are equally careful to minimise what they pay, and if that is a problem we ought to tighten the rules – for everyone.
    It may be that this furore will end Sunak’s career, but if so it will be for the wrong reason. And will he be replaced by someone better? Unlikely. And will it prolong Johnson’s tenure at number 10? Very probably.

  • Chris Moore 12th Apr '22 - 8:47am

    Lived abroad for many years.

    I pay UK tax on all UK earnings.

    I pay Spanish tax on all Spanish earnings.

    Plus I pay Spanish tax on all UK earnings that are taxed at a lower rate than in Spain. So on some earnings I pay UK tax and then an extra to bring me up to the rate of Spanish tax.

    Double taxation agreements mean the payee pays the highest rate available in either country.

    Post-Brexit, I have the vote nowhere. (One or two minded open-minded souls on here think that’s only right and proper.)

  • Helen Dudden 12th Apr '22 - 11:53am

    Can you become an MP when you have a Green Card in the US?

  • Laurence Cox 12th Apr '22 - 12:56pm

    It would be interesting to know how much tax Akshata Murty actually pays in the UK once you have included all the other taxes that are payable, and not just concentrate on income tax. I doubt that she does all her own cleaning and cooking, so she probably employs (many) people to do it (and so becomes an employer, either directly or indirectly), then there is VAT, Insurance Premium Tax, Council Tax, Water Rates, duties on various products, etc, not to mention the cost of private schooling and healthcare. If it turns out that she spends more in the UK than her UK earnings, she is bringing money into the country, just like an exporter.

    It is very easy to say, let’s just end non-dom privileges, but if it causes other non-doms to leave the UK and settle in, say, Monaco like Lewis Hamilton and Philip Green have already for tax reasons, then we may actually end up with less income from all taxes. We need to be sure that ending non-dom status will bring more money into the Treasury. Anyone as rich as Akshata Murty can choose to live wherever they like in the world and there are plenty of tax havens, many of them British dependencies; a friend of mine, who made his money in the City in the 1980s moved to Guernsey when he retired (20% flat rate income tax, no capital gains tax, inheritance tax, VAT, or withholding tax) and he is a very small fish compared with Ms Murty.

  • Nonconformistradical 12th Apr '22 - 12:59pm

    @Helen Dudden
    I’m not sure when Sunak first got his green card but since he didn’t relinquish it until some time after becoming Chancellor and by then he’d already been an MP since 2015 – that appears to be what he did.

  • Nonconformistradical 12th Apr '22 - 3:08pm

    @Mohammed Amin
    “The favourable tax treatment the UK gives people who are not UK domiciled is of great benefit to the UK economy, and to the UK Exchequer.”

    Please prove the benefit to ordinary people struggling to put food on the table and roofs over their heads.

    My perception is of a group of wealthy people operating a sort of closed economy within the UK and doing what they like, irrespective of the benefit (or lack of) to or impact on the bulk of the population.

    A large proportion of the population is getting poorer while a small proportion becomes ever richer.

  • @Mohammed Amin
    >The favourable tax treatment the UK gives people who are not UK domiciled is of great benefit to the UK economy, and to the UK Exchequer.

    The recent examination of wealthy Russian individuals with UK “investments”, gives the lie to your argument. You could point to one or two, who through their investments may have benefited the UK economy; however, that would be turning a blind eye to the many more who are simply using this to hide wealth and avoid paying tax in both the UK and Russia.

  • Peter Davies 12th Apr '22 - 8:33pm

    The problem with aligning inheritance rules with income tax rules is that what we call inheritance tax is not one. It’s an estate tax. Presumably her father would be subject to an Indian estate tax if they had one.

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