It was reported in The Independent newspaper on 6 April 2022 that Ms. Akshata Murty (sic), wife of Rishi Sunak, the British Chancellor of the Exchequer, was not required to pay taxes on her overseas earnings by reason of her “non-domiciled” status in the UK. Ms. Murty, as an Indian citizen who retains many personal and financial interests in her country of birth, undertook to pay the required flat fee of £30,000 a year to claim “remittance basis”, joining the ranks of around 75,000 wealthy foreign nationals who are “resident but not domiciled” in the UK, exempt from tax on their overseas incomes while treated as UK tax residents for any income generated in the UK. UK citizens, even those born in the UK, can also claim “non-dom” status, and place of domicile may then be decided by the place of birth of their father. Following an outpouring of moral indignation in the media and among many politicians and members of the public, Ms. Murty reconsidered her position on 9 April, regarding it as potentially damaging to her husband’s political career, and agreed to henceforth pay tax in the UK on all her worldwide earnings, including the 2021-22 tax year.
Ms. Murty, the daughter of N.R. Narayana Murthy, first met Mr. Sunak, while both were MBA students at Stanford University Business School in California in 2005. The couple went on to marry in Bengaluru in 2009. Mr. Narayana Murthy, the billionaire “father of India’s IT sector,” co-founded Infosys in 1981. Infosys, headquartered in Bengaluru, describes itself as a global consulting and IT services company and was at the forefront of the outsourcing of IT services from India. Ms. Murty’s 0.93 per cent stake in Infosys, worth around £700 million, is reported to have yielded £11.6 million in annual dividends in 2021. It has indeed been remarked upon that Ms. Murty’s personal wealth exceeds that of the Queen herself.
Ideally, a taxation system should aim to be equitable, with all taxpayers paying the same proportion of their income on taxes and also deriving some benefit from the programmes funded by their contributions. In such a progressive tax system, one would be taxed according to one’s ability to pay, but the reality of most taxation systems is somewhat different. Not only do some of the wealthiest people avoid paying what might be considered the appropriate amount of taxes on their income, but some of the poorest citizens find themselves in a fiscal trap, facing the highest marginal rates of tax from the overlapping of the tax and benefits systems.
Most people, whatever their circumstances, would probably choose to pay less tax if they could, and the higher one’s income the greater is the propensity, as well as ability, to seek help from the tax avoidance industry (advisers, accountants, lawyers, bankers) to protect one’s earnings, using all possible loopholes in an increasingly complex taxation system that is based upon an unwieldy amount of statute and case law.
Tax avoidance, by definition, is legal, and makes the best use of tax rules and codes to reduce taxes, as opposed to tax evasion, which is illegal and liable to attract civil penalties. Avoidance is an act of commission, whereby the liability to tax on declared sources of income is reduced, often to ridiculously low levels, while evasion is usually an act of omission, deliberate or otherwise, whereby income is concealed by fraudulent means, either onshore or in offshore tax havens. Under Disclosure of Tax Avoidance Schemes (DOTAS) procedures, introduced in 2004, those who resort to such schemes are required to disclose this fact to HMRC. Moral objections to such legal tax avoidance schemes arise from the view that this entails a betrayal of the very spirit and purpose of taxation, which raises much-needed revenues for government spending on the collective good, including public services and the welfare state.
While Ms. Murty appears to made the best possible use of the British tax system, this episode provides us an opportunity to examine some salient aspects of British taxation in relation to her particular situation. Non-domiciled status is a long-standing and uniquely British form of tax break, dating back to 1799, which is available to UK residents who were born abroad and who have lived in the UK for less than 15 years, which means that Ms. Murty would normally have lost this status in 2028 and become “domiciled” in the UK. It provides a way out for those eligible for this status to avoid paying income tax on their worldwide income, which includes trading profits, dividends on investment, interest on bank deposits, capital gains, rental payments, while resident in the UK. Defenders of the status quo have claimed that non-domiciled status is an incentive for wealthy people to set up base in the UK and contribute to the British economy by investing their wealth and creating jobs, while also conveniently shielding their overseas assets and income from the scrutiny of HMC.
Apart from the inevitable legal and moral issues pertinent to Ms. Murty’s particular tax situation, there are some wider ramifications. These disclosures, possibly made public by a Whitehall insider with an ulterior motive, come at a time when the Chancellor, in his recent Spring Statement, imposed an additional income tax burden on the public, while making limited concession to the cost-of-living crisis and only promising an income tax cut ahead of the 2024 general election. It has also emerged that Mr. Sunak held a US green card between February 2020 and October 2021, probably from a lapse of memory, making him a “US tax resident for US income tax purposes”, even as he was Britain’s Chancellor. The juxtaposition of increased taxation of National Insurance contributions and the revelation that the Chancellor’s wife, albeit in her role as a private individual, has chosen not to pay UK taxes on her foreign income has not been well received by many. While not dwelling any further on the merits and demerits of an evolving situation, all that can be said for the moment is that when it comes to minimising taxes, if there’s a will there’s a way.
Ashis Banerjee