Chancellor Rishi Sunak and his billionaire wife Akshata Murty are under fire over the latter's non-domiciled status, so Neil MacGillivray takes a look at the rules in such instances and how many people it applies to.... says Neil MacGillivray, head of technical support at James Hay Partnership.

So, before ‘Party Gate' has even come to a conclusion, we've now got the next big supposed political scandal, the non-domiciled tax status of Chancellor Rishi Sunak's wife Akshata Murty.

All news coverage has made it clear that she's not doing anything illegal. She has a tax advantaged position, which according to HMRC for the tax year ending 2020, she shared with an estimated 75,700 other individuals who were non-domiciled UK taxpayers. 

Due to the tightening of legislation, this number has been in decline in recent times. In 2008, there were in the region of 100,000 individuals registered as non-domiciled.

The primary reason for the 25% reduction was the introduction of the deemed domicile reforms in April 2017. This meant that an individual, who was formerly non-domiciled, might be deemed domiciled for tax purposes if they were born in the UK and had a UK domicile of origin, orif they were resident in the UK for at least 15 of the 20 tax years immediately before the relevant tax year.

Now, we're not privy to Ms Murty's personal tax details, and rightly so, but it's worth reminding ourselves of the tax privileges being non-domiciled affords.

In simple terms, a non-domiciled taxpayer is an individual whose permanent home, their ‘domicile', is outside the UK. They have to claim non-domiciled status for tax purposes through their UK tax returns. The vast majority of non-domiciled taxpayers are UK resident. For the tax year ending 2019, there were 64,700 UK resident, non-domiciled, taxpayers.

A UK resident, non-domiciled individual can be taxed either on an arising basis, or on a remittance basis. An arising basis is where an individual's worldwide income and gains are taxable in the UK as they arise, which is the standard treatment for all UK residents.

Alternatively, they have the advantage of opting to be taxed on a remittance basis, meaning that any foreign income and gains will be taxed only if brought, or remitted, into the UK.

For those who have been resident in the UK for more than seven out of the previous nine years, and wish to continue to use the remittance basis, they have to pay an annual remittance basis charge of £30,000, which increases to £60,000 for those resident in at least 12 of the previous 14 tax years. Thereafter, if they remain resident, they will be deemed domiciled and liable to tax on all their worldwide income and gains as they arise. It may come as a surprise that only 1,900 individuals in the tax year ending 2019 actually paid the remittance charge.

If you delve into HMRC's statistics, they estimate that non-domiciled UK taxpayers paid £7,853 million in UK Income Tax, Capital Gains Tax and National Insurance contributions in the tax year ending 2020. By my crude estimate that's just under £104,000 per head in taxes.

If you look at the most recent figures available for UK resident, non-domiciled, taxpayers on the remittance basis, for the tax year ending 2019, it works out around an average of £140,000 per head and for the smaller number, who paid the actual remittance basis charge, an average of just under £500,000 per head. Although potentially making substantial UK tax savings, they are still contributing a healthy amount to the state.

Business investment relief allows those who have opted for the remittance basis to make tax free remittance of overseas income and gains to the UK, provided the funds are used for a commercial investment in UK business. For tax year ending 2019, this brought in £1,031m from 500 investors, which again can be seen as a positive.

So, if your father happens to be a billionaire, and you're not UK domiciled, the UK may appear to be the land of tax planning opportunity. The current legislation is meant to attract wealth and investment to the UK shores. Whether it's a price worth paying is open to debate, but to challenge the morals of those who take up the opportunities is, dare I say, a bit rich.

By Neil MacGillivray, head of technical support at James Hay Partnership.