Why 'non-dom' status might not be worth it for UHNWs - Spear's Magazine

Why ‘non-dom’ status might not be worth it for UHNWs

Why ‘non-dom’ status might not be worth it for UHNWs

Tax experts tell Spear’s that while perfectly legal, ‘non-dom’ status can pose serious problems for UHNWs and their families in the public eye

The debate on how to balance the country’s books dominated the latter stages of the recent Tory leadership race – but it was April’s front-page revelations about the ‘non-dom’ status of Rishi Sunak’s wife, Akshata Murty, that some believe scuppered the chances of the former frontrunner. Luke Tryl, director of research agency More in Common, told the Times that revelations around Murty’s tax affairs had ‘crystallised’ Sunak’s popularity dive.

When her tax status hit the front pages, Murty quickly changed tack and agreed to pay UK tax on her foreign earnings – which included dividend payments from India-based tech company Infosys, founded by her father. But that may have been closing the stable door after the horse had bolted.

Others in the public eye have faced similar challenges regarding perceptions of their tax affairs. Alan Sugar faced calls to clarify his UK residency status in the summer after he was paid a £390 million dividend from his holding company. Nadhim Zahawi came under pressure concerning his tax affairs and the origins of £26 million of loans which were reportedly used to purchase properties across the UK.

Top tax advisers are in no doubt about the calculus that faces successful people in the public eye. ‘I just feel dreadfully sorry for Mrs Sunak – she hasn’t done anything wrong in tax terms’, Wedlake Bell’s Camilla Wallace tells Spear’s.

‘They should have had advisers around them saying, “Look, of course you can claim the remittance basis legally, it’s your right. But actually, if this gets out in the press, how would you feel?” They should have said that immediately when he became chancellor: “How would you feel if your wife’s non-dom status was on the front page of the Daily Mail?”’

‘I wouldn’t have said they handled it particularly well,’ says Mark Davies, who specialises in advising UHNWs on complex tax structures. ‘I think attitudes, the public’s attitude towards tax avoidance, has changed.’ Davies, who founded his own tax advisory firm, Mark Davies & Associates, says that questions over fairness around what the wealthy pay are now frequently brought up in the media. ‘It ended up with Mrs Sunak being sort of bullied into saying that she’s going to give up claiming a perfectly legal tax relief.’

Rishi Sunak and Akshata Murty
Rishi Sunak and Akshata Murty

Mark Bridges, who splits his time as a peer and as a specialist on trusts and succession at Farrer & Co, says that although Murty was ‘100 per cent entitled’ to her non-dom status, ‘she did absolutely the right thing to abandon it’. The nature of political scandal has changed, he says: ‘You go back to the bad old days – it wasn’t tax, it was sex. Any time they were caught doing something they shouldn’t with somebody they shouldn’t, they had to resign – that’s all changed.’ Bridges says that as the private lives of politicians have become a ‘non-issue’, the focus has turned ‘towards their tax compliance.’

PR legend and crisis management guru Mark Borkowski believes UHNWs are facing more scrutiny than ever, given cost-of-living challenges and a wider polarisation in society. ‘If you’re a high-net-worth individual… who’s decided to choose whatever vehicle they have to pay less tax, that doesn’t ring well when people are heating up their baked beans under a candle,’ he says. ‘And if you’re an individual in the public eye, you are rapidly going to be a bigger target than ever, because we’re going into a very profound age of have and have-nots.’

Bridges says the rules around non-doms have changed ‘very fundamentally’ and ‘with that, there’s been a public perception perhaps that there’s something funny, fishy’.Still, Borkowski believes that ‘from a PR perspective, without being too obvious’, UHNWs can ‘leverage’ their positive contributions to society. Non-doms contribute relatively highly to the UK coffers, Davies notes. ‘The average non-dom [is] paying something like £80,000 towards tax… And that’s roughly 25 times the average amount that the British taxpayer pays.’

While the public may forgive certain mistakes, Borkowski says: ‘What they won’t forgive is deliberate obfuscation and a continual narrative where the person doesn’t seem to be changing or hasn’t tried to.’ He reminds clients to take ownership of missteps. ‘Never blame, take total responsibility for your affairs. That’s the key thing. Do not hide behind someone, and do not blame your accountant or your private wealth adviser or whatever. You are in control.’

Meanwhile, Davies says UHNWs should steer well clear of overly complex arrangements that might draw suspicion down the line. A good rule of thumb, he says, is: ‘If you cannot understand it, you probably shouldn’t do it.’ For Bridges, clients should ‘keep well away from what I would call “clever-dick tax schemes”. Keep it simple, and don’t try to push the boundaries on this year’s clever scheme.’

Image: Max Mumby/Indigo/Getty Images



 

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