Is it time to close the non-dom tax loophole? Strictly Business debate

As Chancellor Rishi Sunak has presided over the largest tax rises since the 1940s.

So, it came as a surprise to ordinary taxpaying citizens and small businesses to learn that Sunak’s heiress wife, who was born in India, had made the choice to be a non-domicile for tax purposes.

In so doing Akshata Murty, daughter of one of India’s richest tech billionaires, broke no laws or rules.

Under the glare of publicity she has nevertheless renounced her special status. By previously choosing non-domicile status she set herself apart from the vast majority of UK residents.

Many European countries offer special tax arrangements to attract wealthy overseas citizens. They bring with them cash to be invested and are big supporters of the service sector of the economy. 

Do these potential gains and the large amounts of tax collected from non-doms – on their UK interests – support the case for preserving the current system, or should the loophole be closed? 

The Daily Mail’s Ruth Sunderland and Alex Brummer debate the issue in this Strictly Business episode.

Data from Her Majesty’s Revenue and Customs (HMRC) shows that in the year ending 2020 there were 75,700 British residents who had non-dom status down from 78,600 the previous year.

In spite of being non-domiciled, which shelters their overseas income and investments from tax, this group still contributed to the public purse. It paid £7.85bn of income, capital gains and national insurance. 

So, the idea that they are free loaders, making little direct contribution to the provision to public services is unproven.

Non-domicile status has been available to the offspring of overseas born fathers since colonial times. It can be obtained from HMRC for between £30,000 and £60,000 a year depending on how long the applicant has lived in Britain.

In modern times it has been seen as a device in making Britain an attractive destination for the super-rich around the world including some of the now sanctioned and outlawed Russian oligarchs.

What made the disclosures about Murty’s tax affairs damaging is that it fits into a narrative that the rich are different.

By previously ring-fencing her income from a 0.93 per cent stake (worth £712m) in her father’s company InfoSys she was able to avoid regular UK dividend taxes.

The real problem for the Chancellor and his wife is not her extraordinary wealth or non-domicile status but the optics.

The people of Britain have been through hard times after real incomes (wages adjusted for inflation) barely rose in the years of austerity which followed the 2008-09 great financial crisis. 

Now they are being battered by a cost-of-living burden, as a result of surging gas and oil costs. Consumer price inflation is forecast to rise 7.4 per cent on average over 2022.

The timing of revelations about Murty’s tax arrangements was embarrassing. It came as the new NHS and social care levy – a 1.25 per cent surcharge on every working person and employer in the UK – came into effect.

The government watchdog, the Office for Budget Responsibility, records that the tax burden in the UK is due to rise to 36.3 per cent of national output by 2026-27 ‘its highest level since the 1940s.’