What is a non-dom?

Last month it was revealed that UK Chancellor Rishi Sunak’s multi-millionaire wife claims non-domicile status, which allows her to save millions of pounds in tax on dividends collected from her family’s tech empire. It caused a massive furore and reignited the debate about ‘non-doms.’ Akshata Murty, who receives about £11.5m in annual dividends from her stake in the Indian IT services company Infosys, declares non-dom status in the UK, a scheme that allows expats to avoid tax on foreign earnings. Infosys is headquartered in Bengaluru, India, and listed on the Indian and New York stock exchange. A UK resident taxpayer would pay a 39% tax on such dividend payouts. A spokeswoman for Murty said: “Akshata Murty is a citizen of India, the country of her birth and parents’ home. 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.”

Let’s take a closer look at what constitutes a non-dom

Your domicile is typically the country your father considered his permanent home when you were born. It may have changed if you moved abroad, and you do not intend to return. If you need help working out which country you’re domiciled in, you can read chapter 5 of HM Revenue and Customs’ (HMRC) guidance on ‘Residence, Domicile and the Remittance Basis’. If you ARE a non-dom, you do not pay UK tax on your foreign income or gains if they’re less than £2,000 in the tax year and you do not bring them into the UK, for example by transferring them to a UK bank account. If your income is £2,000 or more you must report foreign income or gains of £2,000 or more, or any money that you bring to the UK, in a Self Assessment tax return. You can either pay UK tax on them – you may be able to claim it back or claim the ‘remittance basis.’ Claiming the remittance basis means you only pay UK tax on the income or gains you bring to the UK, but you lose tax-free allowances for Income Tax and Capital Gains Tax (some ‘dual residents’ may keep them), and pay an annual charge if you’ve been resident of the UK for a certain amount of time. Whilst it remains controversial, a non-dom is a legitimate way expats in the UK can become tax efficient. But this hasn’t stopped the drama surrounding the Chancellor and his wife. As The Guardian reported: “Murty, whose family business is estimated to be worth around £3.5bn, has used the valuable tax status as recently as April 2020 – two months after her husband was put in charge of setting taxes for the country, according to two people familiar with her financial arrangements.”

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