UK to scrap non-dom tax status that triggered row surrounding PM Sunak’s wife Akshata Murthy

The British government is scrapping its non-domiciled tax status, which triggered the Akshata Murthy tax avoidance controversy, from April 2025, the Rishi Sunak cabinet said in a Spring Budget policy paper issued on Wednesday.

The UK-specific tax policy had been in the news after it emerged in 2022 that PM Sunak’s wife Akshata Murthy, who owns shares in Infosys, had a non-dom status, which meant that she was not legally bound to pay tax in the UK on income earned overseas.

The government justified the decision to do away with the current system in a statement issued on the official website on March 6. “The concept of domicile is outdated and incentivises individuals to keep income and gains offshore. The government is therefore modernising the tax system by ending the current rules for non-UK domiciled individuals, or non-doms, from April 2025. The government is introducing a new residence-based regime taking effect from April 2025,” it said.

Who has non-dom status?

The non-domicile status is applicable to citizens whose permanent home, or domicile, is considered to be outside the UK. According to the current rules, they have to pay tax on their UK income and gains in the country, but they pay tax on their foreign income or gains (FIG) only when they are remitted, or brought to, the UK.

As per the new reform, citizens who have been residents of the UK for more than four years will have to pay full taxes from the end of their fourth year of tax residence. New arrivals can avail of the tax benefits for the first four years. There will also be a temporary 50% reduction in the personal foreign income subject to tax in 2025-26 for non-doms who will lose access to the remittance basis on 6 April 2025, said the release.

The reform is expected to raise £2.7 billion per year by 2028-29, said the statement.

Akshata Murthy issue

The term ‘non-dom tax status’ had been in the news two years ago when the UK Opposition had questioned then-Chancellor Sunak over his wife’s tax status which allowed her to potentially avoid up to £20 million (around Rs 197 crore) in UK tax. Murthy later said that she would pay UK tax on overseas income from 2021-22.

Akshata Murthy is the daughter of Narayana Murthy, who is one of the founders of the Bengaluru-based IT giant Infosys. She owns about 0.93% of the company and earns about £11.5 million (Rs 11.56 crore) in annual dividends from her stake in the company, as per UK media reports.

Initially, her spokesperson sought to dispel allegations of wrongdoing, saying she has been paying all relevant taxes. “Akshata Murthy is a citizen of India, the country of her birth and parents’ 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,” her spokesperson said in a statement.

As per a report in The Guardian, Murthy had collected about £54.5 million in dividends from Infosys, saving an estimated amount of £20 million in UK taxes due to her non-dom status.

However, as the controversy grew, Murthy issued a statement saying that she would pay British tax on her global income, including dividends and capital gains, for the 2021/22 tax year and in future. “I understand and appreciate the British sense of fairness and I do not wish my tax status to be a distraction for my husband or to affect my family,” she said.

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