What is non-dom status and how do you qualify as Rishi Sunak's wife avoids UK tax

The Tory government is on the brink of a fresh new scandal after it has come to light that the billionaire wife of Rishi Sunak may have saved millions through a particular tax status.

The Chancellor is facing calls to ‘come clean’ about his family’s financial affairs with his wife Akshata Murthy’s tax-saving scheme now out in the open - raising questions over whether Sunak is in touch with the people his harsh tax policies impact.

Said scheme is known as non-domicile or ‘non-dom’ status and relates to the location where money is earned and where it can be taxed.

Murty's non-dom status means she is able to avoid paying some tax in the UK.

This isn't illegal but raises questions about the ethics of the chancellor at a time when millions of peoples are being hit with huge tax rises. As shadow cabinet minister Ed Milliband said: “I think it's legal, but is it right?”

Christine Jardine, spokeswoman for the Liberal Democrat Treasury, said: "Sunak now needs to come clean about which country his family pays tax in abroad and if it is a tax haven."

What is non-dom status?

Rishi Sunak's wife Akshata Murthy has come under fire for not paying UK tax on parts of her income (PA)

Non-dom status is available to people who have their primary home or domicile outside of the UK, but are UK residents.

The status is legal but controversial. For Akshata Murthy, her non-dom status means she may not have to pay tax on some income earned abroad.

Ms Murthy is an Indian citizen, and her spokesperson said that she pays all the taxes necessary in the UK, although it is not clear how much she is likely to have saved through her status.

In UK law, a person’s domicile is regarded as wherever their father regarded as his permanent home at the time of their birth.

If you leave that country with no intention of returning, your domicile can change.

If less than £2,000 is earned in foreign income and it isn’t brought into the UK then you do not need to pay tax on it if you have non-dom status.

Bringing into the UK could mean, for example, paying into a UK bank account.

If you earn more than £2,000 per year or you decide to bring it into the UK then two options are presented to you:

1. Pay the UK tax and then, under the argument that you have been taxed twice, claim it back. In the interest of tax relief, the UK government will normally give some or all of it back.
2. Only pay tax on the income you bring into the UK and pay an annual fee in order to not pay tax on the rest of the money that doesn't get brought across.

This second option is only available for people who have lived in UK for a certain amount of time.

You can pay a £30,000 flat fee if you’ve lived in the UK for seven of the last nine years or £60,000 if you have lived here for 12 of the last 14.

How is Akshata Murthy using her non-dom status?

Rishi Sunak and his wife Akshata Murthy in the stands during during a Test match at Lord's (PA)

For Akshata Murthy, her non-dom status means she doesn't have to pay tax on dividends earned through any investments she has abroad.

Her family business is thought to be worth in the region of £3.5 billion.

Her spokesperson said the reason she had to use this status was due to her Indian citizenship.

They added: “India does not allow its citizens to hold the citizenship of another country simultaneously. So, according to British law, Ms Murthy is treated as non-domiciled for UK tax purposes. She has always and will continue to pay UK taxes on all her UK income.”