What is non-dom status?

UK chancellor is under fire over wife’s use of legal but controversial tax loophole

The wife of Rishi Sunak, the British chancellor, has claimed non-domicile status to save on her tax bill, The Independent has revealed.

It is not known exactly how much Akshata Murty saved through this, but sources claimed it could have avoided her paying millions of pounds in tax on foreign earnings over several years.

“Non-dom” status is lawful but controversial.

It is an optional status for UK residents whose permanent home - or “domicile” - is abroad. With this status, these people may not have to pay tax on foreign income.

The UK government says a person’s domicile is usually the country where their father considered his permanent home when they were born. But this can change if the person moved abroad and does not intend to return.

If foreign income is less than £2,000 in a tax year and is not bought into the UK, for example transferred into a UK bank account, someone with non-dom status is not liable to pay UK tax on it.

With income over £2,000 a year, or that bought into the UK, there are two options.

1. Pay UK tax on foreign income and claim it back due to being taxed twice. The UK government says tax relief rules will usually give some or all of this tax back
2. Pay UK tax on foreign income bought into the UK only and pay an annual fee to avoid paying tax on the rest

This option is available to those who have lived in the UK for a certain number of years; the annual fee is £30,000 for residents who have lived in the UK for at least seven out of the last nine tax years and £60,000 for 12 out of the last 14.

The “non-dom” status means Ms Murty she does not have to pay UK tax on income from dividends from foreign investments, rental payments on property overseas or bank interest. It also means a person avoids UK inheritance tax.

A spokesperson for Ms Murty, whose family business is estimated to be worth £3.5bn, claimed she had to use non-dom status because of her Indian citizenship.

They said: “India does not allow its citizens to hold the citizenship of another country simultaneously. So, according to British law, Ms Murty is treated as non-domiciled for UK tax purposes. She has always and will continue to pay UK taxes on all her UK income.”

But the revelation will nonetheless fuel accusations that the chancellor is out of touch with working people facing a cost-of-living crisis.

Labour has called on Mr Sunak to “urgently explain how much he and his family have saved on their own tax bill at the same time he was putting taxes up for millions of working families”.