During all the recent furore over the fiscal affairs of the Chancellor and his wife, what has most ruffled our feathers is the almost universal ignorance of the fiscal provisions at issue displayed by the politicians and journalists who have commented on the matter. Even the Daily Telegraph, traditionally the most accurate of the broadsheets on fiscal matters, made gross errors of its own and reported, uncritically, the gross errors of others.
When the story broke, the Telegraph began its article on the matter with a headline unhappily combining a grammatical error with a misunderstanding of the relevant fiscal provisions:
‘Rishi Sunak’s millionaire wife is ‘non-domicile for tax purposes’.
The article repeated its error in its second paragraph:
‘[The Chancellor’s wife] “holds non-domicile status for UK tax purposes, the Treasury confirmed on Wednesday”’.
In fact, there is no special ‘non-domicile status’ for ‘tax purposes’. A person’s country of domicile is a fundamental status under the law of England, is of relevance to the application of many different areas of the law and is to be determined as a matter of fact.
The article went on to say, implying that she might now be domiciled in a country of the United Kingdom, that the Chancellor’s wife, who chooses to be known by her maiden name of ‘Murthy’:
‘ … held “non-dom” tax status as recently as April last year’.
It is clear from the facts which have emerged that Ms Murthy considers herself to have retained a domicile of origin in India and, if this is so and her view is correct, her domicile status will only have changed if she has formed an intention to reside in England (she appears to be resident for UK fiscal purposes in the UK and to reside at properties in London and Yorkshire) permanently or indefinitely. There is nothing in the facts which have emerged, however, to suggest that her intentions in this regard have changed recently.
It is odd that the Telegraph did not draw attention to the significance of this aspect of the law of domicile; that if the Chancellor’s wife is not domiciled in the UK it must be because she does not intend to make the UK her home permanently or indefinitely. This, coupled with the fact, which emerged later, that both Mr. Sunak and his wife hold green cards, a condition of the holding of which is that the holder should intend to reside permanently in the United States, suggests that the commitment of the Chancellor and his wife to the UK is temporary and limited.
The article went on:
‘The designation allows Ms Murthy to avoid paying tax on foreign investments and overseas rental income, and to avoid inheritance tax entirely.’
‘Designation’ is an inaccurate way of putting the matter. It is not being designated as not being UK domiciled which results in Ms Murthy having various tax privileges. It is the fact, if that is indeed the case, that she is not so domiciled which has the result that she has those privileges. Nor is it true that being ‘non-domiciled’ allows her to avoid Inheritance Tax entirely. Even if she remains not domiciled in a country of the UK she will be liable to UK Inheritance Tax in respect of UK situated assets, certain assets relating to UK businesses and of holdings and interests in foreign companies and through foreign trusts and other arrangements to the extent that they in turn hold UK land directly or indirectly.
The article went on to say:
‘Despite holding the non-dom status, Ms Murthy would have been required to choose to pay her tax on a “remittance basis” and receive the tax benefits. They are not automatic.’
It is certainly true that the remittance basis of taxation would only have applied to Ms Murthy in fiscal years in which she made a claim for it to do so. The restriction of the charge to Inheritance Tax on the estates of those who are not UK domiciled, however, does not depend on a claim being made.
The article went on to report that:
‘Her spokeswoman said on Tuesday that she held non-dom status because she was an Indian citizen, and the constitution of India does not allow individuals to hold dual citizenship.’
Citizenship, however, is only of peripheral relevance to determining a person’s domicile status. A person can certainly be domiciled in a country of the UK who does not hold United Kingdom citizenship.
The writer then revealed new depths to his ignorance by saying:
‘Ms Murthy will automatically become resident in the UK – and lose the status – in six years’ time, when she has lived in the UK for 15 years.
The remittance basis only applies in a year in which a person is resident in the UK for UK fiscal purposes so it is implicit in the matters which are the subject of the article that Ms Murthy has been resident in the UK in all relevant years. The writer has confused ceasing to be eligible to make a remittance basis election by reason of a period of prolonged UK-residence with a change of residence status.
Finally the article repeated the statement of Ms Murthy’s spokeswoman as to the effect of her holding Indian citizenship, again without highlighting the fact that it was an incorrect statement of the relevant fiscal law:
‘A spokeswoman said:
“Akshata Murthy is a citizen of India, the country of her birth and parent’s home. 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.”’
It is only fair to the Telegraph to say that we have singled it out because of its previous record, of accuracy in reporting fiscal affairs. One could provide similar examples of fiscal ignorance in articles on the subject published in every other major national newspaper.
The Telegraph has, as have other newspapers and opposition politicians, criticised Ms Murthy for claiming the remittance basis by virtue of being non-UK domiciled, characterising her claims as being ‘tax avoidance’.
In the case of IRC v. Willoughby and another [1997] TC 57, however, Lord Nolan, giving the leading speech, famously said that there was an important distinction between ‘tax avoidance’ and ‘tax mitigation’ and that it would be absurd ‘to describe as “tax avoidance” the acceptance of an offer of freedom from tax which Parliament has deliberately made’.
A version of the remittance basis has been a feature of Income Tax since its introduction in 1799 and the conferral of fiscal privileges on those who are resident in the UK but are not domiciled in a country of the UK has been a feature of the UK’s fiscal system since the beginning of the First World War. The present system is the result of reforms made in 2008 during the last Labour Government and of further modifications made in 2017 under the Conservative Government. They were the result of substantial public discussion and were the subject of extensive representations by the leading professional bodies with expertise in taxation. There is, perhaps, no offer of freedom from tax which Parliament has made more ‘deliberately’ than the offer of the remittance basis election in its current form. It would be absurd, to adopt Lord Nolan’s description, to characterise a person making a remittance basis election as having undertaken ‘tax avoidance’ rather than ‘tax mitigation’. One might as well characterise an individual claiming the personal allowance or to transfer a part of it to his spouse as undertaking ‘tax avoidance’.
Yet on Saturday it was announced that Ms Murthy would not make further remittance basis elections. On the basis of newspaper estimates of her unremitted foreign source income, journalists estimate that this will cost her £4.4m per year; effectively an annual donation to the Exchequer and the price of her husband’s political career. To maximise her payments to the Exchequer in this way is artificial tax planning with a vengeance. Appeasing the ignorance and prejudice of public opinion does not come cheap.
But then, who is responsible for that ignorance and prejudice? It is the task of Government to explain to the people of this country the nature of our fiscal system and the principles upon which it works. Politicians and journalists also have a responsibility to join it in doing so. It is because the Government, politicians and journalists have, in recent years, all failed to fulfil this duty, indeed have failed themselves to understand the system, that the Chancellor and his wife find themselves in these very expensive difficulties.
The picture accompanying this piece is by Chris McAndrew, CC BY 3.0, via Wikimedia Commons
