British finance minister Rishi Sunak is facing criticism over his Indian wife Akshata Murthy's "non-domiciled" tax status which means she does not pay tax in Britain on her earnings abroad.

"Non-dom" status is controversial in Britain as it is an option for very few taxpayers and is overwhelmingly used by the top 1 per cent of earners, for whom it can facilitate tax avoidance. The system, which is distinct from being resident, is unusual among other leading Western countries.

Who can be non-domiciled?

Being non-domiciled is a tax status that can be used by someone who lives in Britain but has a "primary connection" — broadly speaking, their permanent home - outside the country, British tax guidance showed.

If someone is non-domiciled, they can then choose to pay a fee to be allowed to pay tax on a remittance basis — that is, only on income that they bring into the United Kingdom.

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British Chancellor of the Exchequer Rishi Sunak and his wife Akshata Murthy. File Photo

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A non-domiciled individual must choose whether to pay tax on a remittance basis, or on their global income. Sunak married Murthy in 2009 and the couple moved to Britain in 2013, the i newspaper said.

What does it mean?

A "non-dom" can choose not to have to pay British tax on income or capital gains earned overseas, unless they bring their money into Britain. They still have to pay tax in Britain on money earned in Britain.

Why is it controversial?

It can favour wealthy individuals who earn income outside Britain, allowing them to benefit from lower tax rates overseas. This has made it a target for those who say the British tax system benefits the rich, and the term "non-dom" is often used by the media as a pejorative term.

The opposition Labour Party has previously called for the status to be scrapped altogether. The ruling Conservatives, responding to public anger at this perceived unfairness, announced tighter eligibility criteria in 2015.

Who is eligible?

To be classed as non-domiciled, a person must show that their domicile is in another country. A domicile usually refers to the country an individual's father considered his permanent home when they were born. A person can only be classed as non-domiciled for up to 15 years while living in Britain.

To pay tax on a remittance basis, there is a fee of £30,000 per year, rising to £60,000 for those resident in Britain for at least 12 years. Permanent non-dom status was abolished in 2017.

How many non-doms are there?

There are more than 75,000 mostly foreign nationals, government data showed. A study this week showed that more than one in five bankers earning at least £1,25,000 ($1,64,000) a year in Britain have benefited from non-domiciled tax status in the past.

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