(Bloomberg) -- Prime Minister Boris Johnson's government has been put on the defensive by the revelation that Chancellor of the Exchequer Rishi Sunak's wife, Akshata Murthy, holds non-domiciled status in the U.K. That means she doesn't pay British taxes on her foreign earnings, potentially saving her millions of pounds.
1. What is non-domiciled status?
It's a designation that lets U.K. residents who have their permanent home -- or domicile -- outside the country avoid having to pay regular U.K. taxes on the income they earn abroad. It's not granted automatically; a resident needs to apply. The status also carries the implication that their stay in Britain is not permanent.
2. What does it mean in terms of taxes?
A non-dom, as non-domiciled residents are often called, must:
- Pay regular U.K. taxes on all U.K. earnings.
- When non-U.K. earnings or capital gains exceed 2,000 pounds in a year, a non-dom must either pay U.K. tax rates on that portion or claim a so-called remittance basis, which means that they only pay taxes on the portion they transfer to the U.K.
- Most people choosing the remittance-basis option will lose certain tax-free allowances and may have to pay an annual charge depending on how long they've lived in the U.K.: 30,000 pounds if they've lived in the U.K. for seven of the last nine tax years, or 60,000 pounds if they've lived in the country for at least 12 of the previous 14 tax years.
- The non-domiciled status will lapse after a person has been a U.K. tax resident for 15 of the past 20 years.
3. What's Murthy's situation?
Murthy, daughter of Indian billionaire and Infosys Ltd. co-founder Narayna Murthy, has lived in the country for nine years. She owns 0.93% of shares in IT services and software giant Infosys Ltd., according to Bloomberg data. That's valued at almost $1 billion at current prices.
4. What does she say?
Murthy “is a citizen of India, the country of her birth and parent's home,” her spokesperson said in a statement. “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 U.K. tax purposes. She has always and will continue to pay U.K. taxes on all her U.K. income.”
5. What is the political fallout?
Sunak, long talked about as a potential successor to Johnson, has seen his popularity wane after he delivered a mini-budget in March that critics said doesn't do enough to tackle a growing cost-of-living crisis. While there is no suggestion the chancellor or his wife have broken any laws, the disclosure about Murthy's tax affairs, which follows a report in the Independent newspaper, buttresses the view that Sunak is out of touch with the struggles of ordinary Britons.
Read More: Sunak's Popularity Slumps With U.K. Tories Over Cost of Living
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