Rishi Sunak’s wife, Akshata Murty, probably – by complete accident – benefits from an obscure inheritance tax loophole worth £240m. It is possible that – by design and not accident- Ms Murty has arranged her affairs to benefit from an unrelated income tax loophole worth £5.5m each year. Mr Sunak should, in the interests of transparency, confirm whether his family in fact benefits from these loopholes. And – whether he does or not – these loopholes should be closed.
Akshata Murty holds 0.93% of the shares in her father’s IT company, Infosys.1See Infosys’s most recent disclosures, page 3, about 2/3 of the way down Given the company’s current market capitalisation is $77bn, that implies – ignoring all Ms Murty’s other assets – she is worth at least £600m, and is receiving about £14m of dividends each year2That’s just taking the five-year average dividend yield of 2.36% and multiplying it by the £600m holding.
That would normally have two tax consequences:
- Ms Murty pays around £5.5m of UK income tax each year on her £14m of dividends.3The dividend rate is currently 39.35%. The position would be slightly complicated by Indian tax, which would likely be limited to a 10% withholding tax on the dividends. UK tax then applies to “top up” to the total rate to 39.35%
- the Sunaks’ estate, when they died, would be hit with a £240m inheritance tax bill.4Inheritance tax generally applies at a flat 40% rate.
Ms Murty’s tax status
Akshata Murty is a non-dom, and has historically claimed the “remittance basis”. Which means she wasn’t taxed in the UK on her £14m of annual dividends (and her tax was likely limited to a 10% Indian dividend withholding tax). Mrs Murty agreed earlier this year to stop claiming the remittance basis.
But she remains a non-dom. That has some interesting consequences.
The accidental £200m inheritance tax loophole
As a non-dom, Ms Murty’s estate isn’t subject to inheritance tax on her Indian shares. But good things don’t last forever – non-doms lose that benefit after being resident in the UK for 15 years. That probably gives Ms Murty about five more years before her estate becomes taxable.5You might think a relatively young couple like the Sunaks wouldn’t be thinking about inheritance tax; but in my experience the very wealthy absolutely do from an early age.
Except it won’t.
There’s an obscure loophole in a 1950s tax treaty between the UK and India.6Enacted by The Double Taxation Relief (Estate Duty) (India) Order 1956. The effect of the treaty is that an Indian non-dom like Ms Murty is never subject to UK inheritance tax. The 15-year rule that applies to everyone else7At least I don’t believe other countries have equivalent treaties; there is a similar treaty between the UK and Italy, but in practice that has no effect doesn’t apply to Indians.
Why this weird result? Because, in the 1950s, India and the UK had similar estate duties, and it was perfectly rational for UK-domiciled individuals to pay only UK estate duty, and Indian-domiciled individuals to pay only Indian estate duty. The problem is that India abolished its estate duty in the 1970s, so the treaty now serves no rational purpose – it just creates a loophole for UK resident Indian domiciled individuals.
It’s not up to Ms Murty whether to claim the treaty, and she’s not remotely to blame for being a non-dom or having a potential treaty claim. But the result is inequitable. The treaty should be scrapped and the loophole closed.
The potential £5.5m income tax loophole
Non-doms aren’t taxed on their foreign income and gains – so until earlier this year, Ms Murty escaped around £5.5m of annual income tax on her Infosys dividends.
Like inheritance tax, the income tax benefit ends after 15 years. However, there is a very common practice amongst non-doms of putting their assets into an “excluded property trust” before the 15 years are up8This also has an inheritance tax benefit; but the 1950s treaty means Ms Murty doesn’t need any inheritance tax protection. The effect of the trust is broadly that the benefit of non-dom status lasts forever. I’ve no evidence Ms Murty put such a trust in place,9Infosys’ disclosure shows the shares held in Ms Murty’s own name, which on its face suggests there is no trust. However, it is possible Indian disclosure rules “look through” trusts; a more paranoid possibility is that Miss Murthy holds the shares as a nominee for a trust, so that the trust does not become publicly disclosed but it is sufficiently common – indeed almost universal – planning for wealthy non-doms10try a Google search for “excluded property trust” that it’s fair to ask the Sunaks to confirm, in the interests of transparency, whether she did.
My view is that excluded property trusts are a loophole that should be closed (ideally as part of a wider reform of non-dom rules). If the Prime Minister’s family take advantage of the loophole then that argument becomes all the more powerful.
Has Rishi Sunak himself avoided tax?
There was a report in the Independent that Rishi Sunak was listed as a beneficiary of two offshore trusts. Sunak denied this very clearly in an interview with Andrew Marr, and – whilst am sure the Independent was acting in good faith – there is nothing in Sunak’s background or history that gives me any reason to doubt his denial.
There was a report on Channel 4 that, when Sunak was a hedge fund manager, he was involved in tax avoidance. I investigated this and concluded that he had done nothing wrong, and that the Channel 4 report was misleading.
Photo by Simon Walker / HM Treasury – Flickr, OGL 3
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1See Infosys’s most recent disclosures, page 3, about 2/3 of the way down
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2That’s just taking the five-year average dividend yield of 2.36% and multiplying it by the £600m holding
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3The dividend rate is currently 39.35%. The position would be slightly complicated by Indian tax, which would likely be limited to a 10% withholding tax on the dividends. UK tax then applies to “top up” to the total rate to 39.35%
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4Inheritance tax generally applies at a flat 40% rate.
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5You might think a relatively young couple like the Sunaks wouldn’t be thinking about inheritance tax; but in my experience the very wealthy absolutely do from an early age.
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7At least I don’t believe other countries have equivalent treaties; there is a similar treaty between the UK and Italy, but in practice that has no effect
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8This also has an inheritance tax benefit; but the 1950s treaty means Ms Murty doesn’t need any inheritance tax protection
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9Infosys’ disclosure shows the shares held in Ms Murty’s own name, which on its face suggests there is no trust. However, it is possible Indian disclosure rules “look through” trusts; a more paranoid possibility is that Miss Murthy holds the shares as a nominee for a trust, so that the trust does not become publicly disclosed
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10try a Google search for “excluded property trust”
One response to “Rishi Sunak, Akshata Murty, and two big tax loopholes”
Thank you for bringing up the 1956 UK/Indian Estate Duty Order. It is interesting how currently it helps achieve double non-taxation — something, which the Multilateral Instrument was aimed at avoiding in the BEPS framework. Interesting to see whether it will be scrapped as you suggested.
Also, why can’t Mrs Murty elect to be a considered as a deemed domiciled person under the Inheritance Act? This would solve all these issues, no?