The term 'non-dom' has been making headlines this week after it emerged Chancellor Rishi Sunak's wife, Akshata Murty, does not pay taxes on her profits abroad.
That’s because the businesswoman has 'non-dom' status, which basically means you don’t have to pay any taxes on profits earned outside of the UK.
It's a phrase used for a UK resident whose permanent home, or domicile, is outside of Britain – however this particular case is interesting because Akshata Murty lives in London with her family.
Non-domicile is not unlawful, but it is controversial. It has nothing to do with one's chosen nationality, citizenship or resident status.
If you have this status, you only have to pay tax on earnings made in the UK.
You don’t have to pay any tax to the UK on money made elsewhere in the world (unless they pay that money into a UK bank account).
For a businessman or woman, it means you can make some substantial savings by choosing to be registered in a country with a low tax rate.
It’s not granted automatically; a resident needs to apply. The status also carries the implication that their stay in Britain is not permanent.
You can become a non-dom in two main ways:
- Domicile of origin - if you were born in a different country from the UK, or if your father came from a different country.
- Domicile of choice - if you are over 16 and choose to leave the UK and live indefinitely in another country
Akshata Murty's status as a non-dom rests on the fact that her billionaire father Narayna Murthy is Indian, and she was born and grew up in India.
Although she is a fashion designer by profession, she reportedly owns a little under 1% of Infosys, the giant Indian IT-services company founded by her father—a stake worth around £710million.
It would have generated £11.6million in dividends for her in the past tax year.
Had she not been a non-dom, 38.1% of those earnings would have been due to the government department her husband runs.
If you're a non-dom, you still have to pay an annual fee to the UK government.
Instead of paying taxes on earnings abroad, you instead pay an annual charge which is £30,000 if you've been here for at least seven of the previous nine tax years or double that - £60,000 if you've been here for at least 12 of the previous 14 tax years.
The system has been around for 200 years but the application rules for it changed in 2017.
You can no longer apply for non-dom status if you have been a UK resident for 15 out of the previous 20 years, you were born in the UK, your domicile of origin was in the UK or you were resident in the UK for at least a year since 2017.
In 2010 it was revealed that several members of the House of Lords had non-dom status, including the Conservative peer Lord Ashcroft, and on the Labour benches, Lord Paul.
According to the latest figures from HM Revenue and Customs, there were 75,700 claiming non-dom status in the UK in the tax year ending 2020.
Most non-doms in the UK live in and around London, namely in Kensington and Westminster - the wealthiest regions in the UK.
