Tory Tax Spin Unravels

Any suggestion that the Tories may have stolen the initiative from Labour on Non-Dom tax status has quickly dissipated as details of the Chancellor's proposals emerged.

The Guardian reports that Conservative plans to abolish non-dom status are riddled with loopholes worth hundreds of millions of pounds for the wealthiest people in the country.

The paper says that the policy, announced by Jeremy Hunt in this month’s budget, could theoretically see Rishi Sunak’s family benefit from tax savings of nearly £250m.

They add that the findings will renew focus both on Sunak’s own wealth – his most recent tax return showed a personal income of £2.2m – and the non-dom status of his wife, Akshata Murty, who owns a £690m stake in Infosys, the IT multinational founded by her father.

In 2022, it emerged that Murty claimed non-domiciled tax status, which allows people to avoid paying UK tax on overseas earnings and had potentially saved her up to £20m. Murty subsequently declared that she would pay UK tax on overseas income, but did not give up her non-dom status:

Under the scheme announced by Hunt, from next year people can avoid taxes only in the first four years of residency in the UK, compared with the previous 15-year threshold. However, Labour says a detailed examination of the plans show a series of ways in which people with existing non-dom status could limit their tax bills.

The most lucrative loophole is a provision that gives non-doms until April 2025 to put overseas funds in a trust, after which they are liable for UK income and capital gains taxes, but exempt from inheritance tax.

Murty holds a 1.05% stake in Infosys, which is valued at about £58bn. If she took advantage of the trust loophole, this could save the family nearly £250m, based on the current inheritance tax rate of 40%.

Andy Summers, associate professor of law at LSE and an expert on high-end tax policy, said it seemed likely that many non-doms would set up trusts, if they had not done so already. “Non-doms will already have most of their assets abroad rather than in the UK because of the incentives they have under the current regime,” he said.

“Putting these in a trust has costs in terms of just the lawyers’ fees and so on, but it doesn’t have any tax disadvantages under the new regime. So, you’d be kind of mad not to do it.”

Another tax expert, Arun Advani, associate professor of economics at Warwick University, said giving people a year to set up a trust was “ages in tax planning time”.

He queried why the trust loophole – if it was intended as an incentive for people to bring wealth into the UK – is time-limited until 2025: “If they think that to do otherwise would damage the economy because people won’t come here, then why is this only a problem for the next year?”

Another element of the new regime that could potentially benefit Sunak’s family is a provision to give a 50% tax discount on any overseas income and capital gains in the first year.

While Murty has said she will pay UK tax on such income, Labour has calculated that this could theoretically save her £3.75m, half the expected £7.5m expected income next year from dividends on her Infosys stake.

Proof that it is always worth looking hard at whatever politicians promise us.