UK minister Rishi Sunak's wife Akshata Murthy claims non-dom status. Why is it a big deal?
Akshata Murthy, wife of UK Chancellor of the Exchequer Rishi Sunak, upset Britains when her residency status as a 'Non-Dom' came to light. But of all people, why does her residential status matter? And how does it really affect Britons? Let's take a look.
FIRST, WHY AKSHATA MURTHY IS IN THE NEWS: Right since the Russia-Ukraine War began, there has been a rising call for companies and businesses to pull out of Russia. Rishi Sunak, UK's Chancellor of the Exchequer - Finance Minister, basically - himself asked British companies and others to pull out of and sever ties with Russia to pinch its economy.
Now sometime in March, Rishi Sunak was attacked by his political rivals over his wife Akshata Murthy's stake in Infosys. They were accused of making 'blood money' as Akshata had a substantial stake (0.93%) in Infosys. Since Infosys was still operating in Russia at the time, the political rivals used this point to attack Sunak.
SO, WHAT IS AKSHATA'S LINK WITH INFOSYS AND RUSSIA? Infosys, being one of India's biggest software companies which operates in about 50 countries, was founded by Narayan Murthy. Infosys has had an engineering centre in Moscow since 2016 and it was set up in Russia to support its customer Ansaldo Energia, which was developing gas turbines to sell to Russian power plants.
Though Narayan Murthy retired in 2014, members of the family still hold a small stake in the company. Akshata Murthy holds about 0.93% stake in Infosys, which is worth more than Rs 6,850 crore (690 million pounds).
Though many companies like Oracle and SAP suspended operations in Russia after Russia's invasion, Infosys continued to operate there and said that it had a "small team of employees based out of Russia that services some of our global clients, locally". While Infosys committed $1 million to help the victims of the war, their statement added: "We do not have any active business relationships with local Russian enterprises."
Now, Sunak has said that he and his wife have nothing to do with the operations of Infosys. But that did not stop many in the UK to pound him with questions and accuse him of collecting 'blood money' because Infosys was still operating in Russia despite the invasion and had previously paid dividends to its stakeholders (i.e, to Akshata).
People have also accused Sunak of not disclosing his interests; something which is required as a minister. This has brought to attention how he has not followed the Code of Conduct with respect to his own and his wife's shareholding, leading to a conflict of interest.
Though Infosys has now said that it is 'in the process of urgently closing down its Russian operation', the issue has also become a larger cause of concern ever since Akshata declared her residential status as 'NON-DOM'.
WHAT IS THIS NON-DOM STATUS? When individuals move to other countries, their residential status changes depending on the duration and intention of stay.
For example, in India, there are three major categories of residential statuses:
- Resident and Ordinary Resident (ROR)
- Resident and Not Ordinary Resident and (RNOR)
- Non Resident (NR)
Laws for each category are similar to a certain extent but their incomes are taxed differently in cases where they earn foreign income. For an ROR, all incomes (domestic and international) are taxed, whereas for an RNOR incomes accruing from India are taxed in India. For Non Residents, international incomes sourced from other countries are not taxed in India.
Similarly, the UK too has their own residential status laws. They are many variations but broadly there are three categories for tax purposes:
- Domicile Status - Have spent more than 15 out of 20 years in UK or holds a UK passport (have always been in the UK). All incomes of domiciled persons are taxed.
- Resident - Who is living in UK for more than 183 days or has a home and has been living in it for more than 90 days (can vary). They will typically work in the Uk for 75% of the time.
- Non Domicile Status - If a person falls under certain criteria, their worldwide income is not taxed. Their UK income is taxed and the money remitted to UK is taxed.
Under UK tax laws, non-doms are individuals who are residing in the UK, but who claim on their tax return that their permanent home (‘domicile’) is abroad.
This entitles them to claim special tax treatment not available to ordinary taxpayers, even though they may spend most of their time in the UK and have lived here for several years.
MURTHY'S NON-DOM STATUS: Murthy’s status as a non-dom means that she is not liable to pay tax on foreign income, but has to pay taxes on all of her UK income. She does not have to pay tax on overseas rents, bank interests and dividend incomes from overseas companies (i.e, Infosys, which is headquartered in India, and listed on both the Indian and New York Stock Exchange.) This means that when she receives about £11.5m in annual dividends from her 0.93% stake in Infosys, it is legally tax-free.
In contrast, UK taxpayers pay a 38.1% tax on dividend payouts.
Also the fact that India does not allow dual citizenship, Akshata declares herself to be a non-dom in UK, which means that she is a citizen in India and must be paying taxes in India on the same income.
Now as per current laws, Murthy will automatically be deemed 'Domiciled' after living in the UK for 15 years. She married Sunak in 2009 and moved to UK in 2015. So, her domicile status will not change before 2030.
HOW DOES ONE USE THIS TO THEIR ADVANTAGE? Well, is Akshata Murthy a new and rare case? Apparently not.
Since non-doms pay no tax on income or capital gains accrued outside the UK (unless they bring the money into the country), it allows the super-rich to avoid paying significant sums to HMRC, the tax-paying authority of UK. Many prominent rich men like Russian oligarch Roman Abramovich, Lakshmi Mittal, and Viscount Rothermere have used these provisions 'legally' to plan their taxes.
More than 1 in 10 residents (i.e 12% of residents) in London have claimed the non-dom status in 2018. Most of these claimants worked in finance, management consultancy and accountancy, with 22% of top earning bankers having claimed non-dom status.
In fact, more than 93% of non-doms were born abroad and mainly came from the US, India and western Europe (especially France, Germany and Italy).
Meanwhile, the number of Indian non-doms in the UK rose rapidly from 4% in 2001 to 14% in 2018. It seems that the reason people move to the UK is because of the non-dom clause, which is an attraction for the super rich.
So, it seems like Britons have no one else to blame for this situation but their own tax laws.
As for Rishi Sunak, he better have a good reason for why he and his wife did not disclose their shareholdings in various companies. He is not just any other rich man in the UK, after all. He is the Chancellor of the Exchequer.