The Domicile (Dis)Advantage: Rishi Sunak requests ministerial interests review amid tax row

April 19, 2022

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2 min read

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What's going on here?

The serving UK Chancellor of the Exchequer, Rishi Sunak, has referred himself to an independent review by the UK’s ethics watchdog over concerns about his family’s tax affairs.

What does this mean?

Akshata Murty, Sunak’s wife, is facing scrutiny over her foreign income disclosures. The earnings in question are concerning her £700m worth of shares in the Indian IT giant Infosys. Murty currently holds a non-domiciled (“non-dom”) UK residency. A “non-dom” is a UK resident who declares their permanent domicile (home) outside the UK. Such persons may not be liable to pay tax in the UK on their foreign income. The exemption may only be granted to persons whose overseas income does not exceed £2,000 in a year or is not brought into the UK as a remittance. Murty reportedly received dividends to the tune of £11.6m last year, resulting in an estimated £2.1m tax avoidance due to her “non-dom” status.

Upon his appointment as Chancellor, Sunak managed to win immediate favour with the public. The successful roll-out of the furlough scheme became a major propeller of his rising approval. However, the third highest-ranked member of the British Cabinet saw his popularity nosedive after reports of an inquiry surfaced into his wife’s tax affairs.

What's the big picture effect?

In light of the recent events, the Chancellor referred himself to the scrutiny of the Prime Minister’s Independent Adviser on Ministers’ Interests, Lord Christopher Geidt. His request for a review was confirmed by Boris Johnson, who expressed full confidence in his choice for the Chancellor. 

Yvette Cooper, Labour’s Shadow Home Secretary, questioned the conflict of interest over important policy decisions, possibly motivated by Sunak’s family’s financial position. Until last year, Sunak held a US green card that required him to file US tax returns. The “US Citizenship and Immigration Services (CIS) Rules” provide that a member of a serving foreign government is not compatible with lawful permanent residency status in the US. The delayed revocation has hence prompted questions of unfair financial advantage. The Chancellor’s status as a beneficiary of an offshore family trust also raised eyebrows from the opposition on his stance and involvement with tax havens. 

However, Sunak has maintained his position that he had made appropriate disclosures about his wife’s “non-dom” status to the Cabinet Office in 2018 when he was first appointed as a government minister. 

Since the incident, Murthy announced that she would pay tax on her overseas earnings in the future, even though her domicile remains in India. This move could lay the ground for tax reforms that enable the wealthy to facilitate tax avoidance measures. 

Sunak’s approval ratings have taken a heavy tumble, as Britons seek further support to manage higher costs of living. Inflationary woes, supplemented by Europe’s dependency on Russian oil imports, have raised serious questions over the Chancellor’s ability to reassure Britons who are feeling the financial pinch. Widely considered to be a top contender to succeed Johnson as Prime Minister, Sunak’s chances of doing so now seem bleak.

Report written by Shasank Konger

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