In Context: Non-dom tax status
If you need to ask about it, you probably don’t have it
The tax affairs of government ministers have been in the spotlight after it emerged that the Chancellor’s wife, Akshata Murty, had used non-dom status to reduce the sum she was liable to pay into the public purse in the UK.
Rishi Sunak’s trouble soon became Sajid Javid’s when it emerged that he had held the status before entering parliament.
It is perfectly legal, but there have been calls from opposition parties for greater clarity over the financial interests of those setting the rules over the way we live and work.
Lord Geidt, the Prime Minister’s independent adviser on ministerial interests, is to carry out a review of all declarations made by Sunak since he entered government in 2018. That’s after the Chancellor wrote to ask Boris Johnson about such a move in an attempt to end speculation over his family’s arrangements.
But there remain questions about how much is known, and should be known about the personal financial position of government figures.
How many government ministers have non-dom status?
Ministers are not allowed to hold non-dom tax status. However, this rule does not cover their immediate family members. In an interview with Sky News, environment minister George Eustice said he has never had the status and would never seek it.
The government has said that, in accordance with the ministerial code, “all ministers provide information about their tax affairs to the Cabinet Office and independent adviser on ministerial interests”.
But it is a useful tool for those who fit the criteria. Holders of non-dom status must still pay UK taxes on UK earnings, but not on money made elsewhere. According to a report by the London School of Economics (LSE) and the University of Warwick, more than one in five of the highest earning bankers have benefited from this.
Although holders of the status must be UK residents whose permanent domicile is in another country, there is no requirement for them to spend most of their time outside of the UK. There is, however, a requirement to pay a £30,000-a-year annual charge, rising to £60,0000 for those who have been in the UK for at least 12 of the preceding 14 tax years, but they can make significant savings if their chosen domicile is in a lower-tax country.
According to the LSE and Warwick study, two in five of the top earners in the oil sector – those on £125,000 or more – are non-doms, along with one in four of those in the automotive industry. Meanwhile, one in six of our biggest sports and film earners have made use of the status and have an average income of £2m each. In fact, four in ten of those who earned £5m or more in 2018 have used the status at some point, researchers found. While most non-doms live in London and the Home Counties, one per cent of those living in the Aberdeen South constituency have used the status, the research concluded.
Supporters of the scheme argue that it still allows money to enter the UK economy through the staff and service providers used by non-doms.
While Sunak accused critics of having “come at” his wife, Murty has said she will pay UK tax on outside earnings, in order to avoid being a “distraction”.
Why does it matter?
It’s thought that Murty’s tax arrangements have saved her £2.1m per year. She owns shares worth £700m in the Indian IT operator Infosys, which was founded by her billionaire father. She received £11.6m in dividend income from this last year.
The Chancellor has said he made the Cabinet Office aware of Murty’s non-dom status when he entered government in 2018 and he is confident Lord Geidt will find his financial declarations were “appropriate”.
Labour’s Louise Haigh has said that while the legality is clear, “the question many people will be asking is whether it was ethical and whether it was right that the Chancellor of the Exchequer, whilst piling on 15 separate tax rises to the British public, was benefiting from a tax scheme that allowed his household to pay significantly less, to the tune of potentially tens of millions of pounds”.
Who made these rules?
They’ve been in place for around 200 years, but the most recent revisions were made under the Conservatives in 2017. Those reforms put a 15-year limit on non-dom status.
Javid spent six years as a non-dom while working in banking and bringing home pay of around £3m per year. He gave this up in 2009 before becoming an MP. “Given heightened public interest in these issues, I want to be open about my past tax statuses,” he said.