{"id":8245,"date":"2022-10-24T15:54:51","date_gmt":"2022-10-24T14:54:51","guid":{"rendered":"https:\/\/www.taxpolicy.org.uk\/?p=8245"},"modified":"2022-10-24T16:27:19","modified_gmt":"2022-10-24T15:27:19","slug":"sunaks-loopholes","status":"publish","type":"post","link":"https:\/\/heacham.neidles.com\/2022\/10\/24\/sunaks-loopholes\/","title":{"rendered":"Rishi Sunak, Akshata Murty, and two big tax loopholes"},"content":{"rendered":"\n<p><strong><em>Rishi Sunak&#8217;s wife, Akshata Murty, probably &#8211; by complete accident &#8211; benefits from an obscure inheritance tax loophole worth \u00a3240m. It is possible that &#8211; by design and not accident- Ms Murty has arranged her affairs to benefit from an unrelated income tax loophole worth \u00a35.5m each year. Mr Sunak should, in the interests of transparency, confirm whether his family in fact benefits from these loopholes. And &#8211; whether he does or not &#8211; these loopholes should be closed. <\/em><\/strong><\/p>\n\n\n\n<p>Akshata Murty holds 0.93% of the shares in her father&#8217;s IT company, Infosys.<sup class=\"modern-footnotes-footnote \" data-mfn=\"1\" data-mfn-post-scope=\"0000000000002f4e0000000000000000_8245\"><a href=\"javascript:void(0)\"  role=\"button\" aria-pressed=\"false\" aria-describedby=\"mfn-content-0000000000002f4e0000000000000000_8245-1\">1<\/a><\/sup><span id=\"mfn-content-0000000000002f4e0000000000000000_8245-1\" role=\"tooltip\" class=\"modern-footnotes-footnote__note\" tabindex=\"0\" data-mfn=\"1\">See Infosys&#8217;s most recent <a href=\"https:\/\/www.infosys.com\/investors\/reports-filings\/quarterly-results\/documents\/share-holding\/clause-35-june30-2022.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">disclosures<\/a>, page 3, about 2\/3 of the way down<\/span> Given the company&#8217;s <a rel=\"noreferrer noopener\" href=\"https:\/\/finance.yahoo.com\/quote\/INFY\/\" target=\"_blank\">current market capitalisation<\/a> is $77bn, that implies &#8211; ignoring all Ms Murty&#8217;s other assets &#8211; she is worth at least \u00a3600m, and is receiving about \u00a314m of dividends each year<sup class=\"modern-footnotes-footnote \" data-mfn=\"2\" data-mfn-post-scope=\"0000000000002f4e0000000000000000_8245\"><a href=\"javascript:void(0)\"  role=\"button\" aria-pressed=\"false\" aria-describedby=\"mfn-content-0000000000002f4e0000000000000000_8245-2\">2<\/a><\/sup><span id=\"mfn-content-0000000000002f4e0000000000000000_8245-2\" role=\"tooltip\" class=\"modern-footnotes-footnote__note\" tabindex=\"0\" data-mfn=\"2\">That&#8217;s just taking the <a rel=\"noreferrer noopener\" href=\"https:\/\/finance.yahoo.com\/quote\/INFY\/key-statistics?p=INFY\" target=\"_blank\">five-year average <\/a>dividend yield of 2.36% and multiplying it by the \u00a3600m holding<\/span>.<\/p>\n\n\n\n<p>That would normally have two tax consequences:<\/p>\n\n\n\n<ul><li>Ms Murty pays around \u00a35.5m of UK income tax each year on her \u00a314m of dividends.<sup class=\"modern-footnotes-footnote \" data-mfn=\"3\" data-mfn-post-scope=\"0000000000002f4e0000000000000000_8245\"><a href=\"javascript:void(0)\"  role=\"button\" aria-pressed=\"false\" aria-describedby=\"mfn-content-0000000000002f4e0000000000000000_8245-3\">3<\/a><\/sup><span id=\"mfn-content-0000000000002f4e0000000000000000_8245-3\" role=\"tooltip\" class=\"modern-footnotes-footnote__note\" tabindex=\"0\" data-mfn=\"3\">The <a rel=\"noreferrer noopener\" href=\"https:\/\/www.gov.uk\/tax-on-dividends\" target=\"_blank\">dividend rate<\/a> is currently 39.35%. The position would be slightly complicated by Indian tax, which would likely be <a rel=\"noreferrer noopener\" href=\"https:\/\/www.gov.uk\/government\/publications\/india-tax-treaties\/2020-uk-india-synthesised-text-of-the-multilateral-instrument-and-the-1993-double-taxation-convention-in-force#article-11--dividends\" target=\"_blank\">limited<\/a> to a 10% withholding tax on the dividends. UK tax then applies to &#8220;top up&#8221; to the total rate to 39.35%<\/span> <\/li><li>the Sunaks&#8217; estate, when they died, would be hit with a \u00a3240m inheritance tax bill.<sup class=\"modern-footnotes-footnote \" data-mfn=\"4\" data-mfn-post-scope=\"0000000000002f4e0000000000000000_8245\"><a href=\"javascript:void(0)\"  role=\"button\" aria-pressed=\"false\" aria-describedby=\"mfn-content-0000000000002f4e0000000000000000_8245-4\">4<\/a><\/sup><span id=\"mfn-content-0000000000002f4e0000000000000000_8245-4\" role=\"tooltip\" class=\"modern-footnotes-footnote__note\" tabindex=\"0\" data-mfn=\"4\">Inheritance tax generally applies at a flat 40% rate. <\/span><\/li><\/ul>\n\n\n<h2 class=\"wp-block-heading\" id=\"ms-murtys-tax-status\">Ms Murty&#8217;s tax status<\/h2>\n\n\n<p>Akshata Murty is a <a rel=\"noreferrer noopener\" href=\"https:\/\/www.ft.com\/content\/e3b9d2dc-87d5-4164-9111-104d95f98325\" target=\"_blank\">non-dom<\/a>, and has historically claimed the \u201cremittance basis\u201d. Which means she wasn\u2019t taxed in the UK on her \u00a314m of annual dividends (and her tax was likely limited to a 10% Indian dividend withholding tax). Mrs Murty <a rel=\"noreferrer noopener\" href=\"https:\/\/www.itv.com\/news\/2022-04-08\/sunaks-wife-akshata-murty-to-pay-uk-tax-on-foreign-earners\" target=\"_blank\">agreed<\/a> earlier this year to stop claiming the remittance basis. <\/p>\n\n\n\n<p>But she remains a non-dom. That has some interesting consequences.<\/p>\n\n\n<h2 class=\"wp-block-heading\" id=\"the-accidental-200m-inheritance-tax-loophole\">The accidental \u00a3200m inheritance tax loophole<\/h2>\n\n\n<p>As a non-dom, Ms Murty&#8217;s estate isn&#8217;t subject to inheritance tax on her Indian shares. But good things don&#8217;t last forever &#8211; non-doms <a rel=\"noreferrer noopener\" href=\"https:\/\/www.gov.uk\/guidance\/inheritance-tax-deemed-domicile-rules\" target=\"_blank\">lose that benefit<\/a> after being resident in the UK for 15 years. That probably gives Ms Murty about five more years before her estate becomes taxable.<sup class=\"modern-footnotes-footnote \" data-mfn=\"5\" data-mfn-post-scope=\"0000000000002f4e0000000000000000_8245\"><a href=\"javascript:void(0)\"  role=\"button\" aria-pressed=\"false\" aria-describedby=\"mfn-content-0000000000002f4e0000000000000000_8245-5\">5<\/a><\/sup><span id=\"mfn-content-0000000000002f4e0000000000000000_8245-5\" role=\"tooltip\" class=\"modern-footnotes-footnote__note\" tabindex=\"0\" data-mfn=\"5\">You might think a relatively young couple like the Sunaks wouldn&#8217;t be thinking about inheritance tax; but in my experience the very wealthy absolutely do from an early age.<\/span><\/p>\n\n\n\n<p>Except it won&#8217;t.<\/p>\n\n\n\n<p>There&#8217;s an obscure loophole in a 1950s tax treaty between the UK and India.<sup class=\"modern-footnotes-footnote \" data-mfn=\"6\" data-mfn-post-scope=\"0000000000002f4e0000000000000000_8245\"><a href=\"javascript:void(0)\"  role=\"button\" aria-pressed=\"false\" aria-describedby=\"mfn-content-0000000000002f4e0000000000000000_8245-6\">6<\/a><\/sup><span id=\"mfn-content-0000000000002f4e0000000000000000_8245-6\" role=\"tooltip\" class=\"modern-footnotes-footnote__note\" tabindex=\"0\" data-mfn=\"6\">Enacted by <a rel=\"noreferrer noopener\" href=\"https:\/\/www.legislation.gov.uk\/uksi\/1956\/998\/made\" target=\"_blank\">The Double Taxation Relief (Estate Duty) (India) Order 1956<\/a>.<\/span> 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 else<sup class=\"modern-footnotes-footnote \" data-mfn=\"7\" data-mfn-post-scope=\"0000000000002f4e0000000000000000_8245\"><a href=\"javascript:void(0)\"  role=\"button\" aria-pressed=\"false\" aria-describedby=\"mfn-content-0000000000002f4e0000000000000000_8245-7\">7<\/a><\/sup><span id=\"mfn-content-0000000000002f4e0000000000000000_8245-7\" role=\"tooltip\" class=\"modern-footnotes-footnote__note\" tabindex=\"0\" data-mfn=\"7\">At least I don&#8217;t believe other countries have equivalent treaties; there is a similar treaty between the UK and Italy, but in practice that has no effect<\/span> doesn&#8217;t apply to Indians.<\/p>\n\n\n\n<p>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 &#8211; it just creates a loophole for UK resident Indian domiciled individuals. <\/p>\n\n\n\n<p>It&#8217;s not up to Ms Murty whether to claim the treaty, and she&#8217;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.<\/p>\n\n\n<h2 class=\"wp-block-heading\" id=\"the-potential-55m-income-tax-loophole\">The potential \u00a35.5m income tax loophole<\/h2>\n\n\n<p>Non-doms aren&#8217;t taxed on their foreign income and gains &#8211; so until earlier this year, Ms Murty escaped around \u00a35.5m of annual income tax on her Infosys dividends.<\/p>\n\n\n\n<p>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 &#8220;excluded property trust&#8221; before the 15 years are up<sup class=\"modern-footnotes-footnote \" data-mfn=\"8\" data-mfn-post-scope=\"0000000000002f4e0000000000000000_8245\"><a href=\"javascript:void(0)\"  role=\"button\" aria-pressed=\"false\" aria-describedby=\"mfn-content-0000000000002f4e0000000000000000_8245-8\">8<\/a><\/sup><span id=\"mfn-content-0000000000002f4e0000000000000000_8245-8\" role=\"tooltip\" class=\"modern-footnotes-footnote__note\" tabindex=\"0\" data-mfn=\"8\">This also has an inheritance tax benefit; but the 1950s treaty means Ms Murty doesn&#8217;t need any inheritance tax protection<\/span>. The effect of the trust is broadly that the benefit of non-dom status lasts forever. I&#8217;ve no evidence Ms Murty put such a trust in place,<sup class=\"modern-footnotes-footnote \" data-mfn=\"9\" data-mfn-post-scope=\"0000000000002f4e0000000000000000_8245\"><a href=\"javascript:void(0)\"  role=\"button\" aria-pressed=\"false\" aria-describedby=\"mfn-content-0000000000002f4e0000000000000000_8245-9\">9<\/a><\/sup><span id=\"mfn-content-0000000000002f4e0000000000000000_8245-9\" role=\"tooltip\" class=\"modern-footnotes-footnote__note\" tabindex=\"0\" data-mfn=\"9\">Infosys&#8217; disclosure shows the shares held in Ms Murty&#8217;s own name, which on its face suggests there is no trust. However, it is possible Indian disclosure rules &#8220;look through&#8221; 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<\/span> but it is sufficiently common &#8211; indeed almost universal &#8211; planning for wealthy non-doms<sup class=\"modern-footnotes-footnote \" data-mfn=\"10\" data-mfn-post-scope=\"0000000000002f4e0000000000000000_8245\"><a href=\"javascript:void(0)\"  role=\"button\" aria-pressed=\"false\" aria-describedby=\"mfn-content-0000000000002f4e0000000000000000_8245-10\">10<\/a><\/sup><span id=\"mfn-content-0000000000002f4e0000000000000000_8245-10\" role=\"tooltip\" class=\"modern-footnotes-footnote__note\" tabindex=\"0\" data-mfn=\"10\">try a <a rel=\"noreferrer noopener\" href=\"https:\/\/www.google.com\/search?q=excluded+property+trust&amp;oq=excluded+property+trust\" target=\"_blank\">Google<\/a> search for &#8220;excluded property trust&#8221;<\/span> that it&#8217;s fair to ask the Sunaks to confirm, in the interests of transparency, whether she did. <\/p>\n\n\n\n<p>My view is that excluded property trusts are a loophole that should be closed (ideally as part of a wider <a href=\"https:\/\/heacham.neidles.com\/2022\/09\/27\/non-dom-reform\/\" target=\"_blank\" rel=\"noreferrer noopener\">reform<\/a> of non-dom rules). If the Prime Minister&#8217;s family take advantage of the loophole then that argument becomes all the more powerful.<\/p>\n\n\n<h2 class=\"wp-block-heading\" id=\"has-rishi-sunak-himself-avoided-tax\">Has Rishi Sunak himself avoided tax?<\/h2>\n\n\n<p>There was a <a rel=\"noreferrer noopener\" href=\"https:\/\/www.independent.co.uk\/news\/uk\/politics\/rishi-sunak-akshata-murty-tax-haven-b2054179.html\" target=\"_blank\">report <\/a>in the Independent that Rishi Sunak was listed as a beneficiary of two offshore trusts. Sunak <a rel=\"noreferrer noopener\" href=\"https:\/\/youtu.be\/jP2ZZxReK28?t=1403\" target=\"_blank\">denied<\/a> this very clearly in an interview with Andrew Marr, and \u2013 whilst am sure the Independent was acting in good faith &#8211; there is nothing in Sunak&#8217;s background or history that gives me any reason to doubt his denial.<\/p>\n\n\n\n<p>There was a report on Channel 4 that, when Sunak was a hedge fund manager, he was involved in tax avoidance. I <a rel=\"noreferrer noopener\" href=\"https:\/\/heacham.neidles.com\/2022\/07\/22\/sunak-funds\/\" target=\"_blank\">investigated this<\/a> and concluded that he had done nothing wrong, and that the Channel 4 report was misleading.<\/p>\n\n\n\n<div style=\"height:100px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<p><a href=\"https:\/\/commons.wikimedia.org\/w\/index.php?curid=106282571\" target=\"_blank\" rel=\"noreferrer noopener\">Photo<\/a> by Simon Walker \/ HM Treasury &#8211; Flickr, OGL 3<\/p>\n\n\n\n<ul class=\"modern-footnotes-list \"><li><span>1<\/span><div>See Infosys&#8217;s most recent <a href=\"https:\/\/www.infosys.com\/investors\/reports-filings\/quarterly-results\/documents\/share-holding\/clause-35-june30-2022.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">disclosures<\/a>, page 3, about 2\/3 of the way down<\/div><\/li><li><span>2<\/span><div>That&#8217;s just taking the <a rel=\"noreferrer noopener\" href=\"https:\/\/finance.yahoo.com\/quote\/INFY\/key-statistics?p=INFY\" target=\"_blank\">five-year average <\/a>dividend yield of 2.36% and multiplying it by the \u00a3600m holding<\/div><\/li><li><span>3<\/span><div>The <a rel=\"noreferrer noopener\" href=\"https:\/\/www.gov.uk\/tax-on-dividends\" target=\"_blank\">dividend rate<\/a> is currently 39.35%. The position would be slightly complicated by Indian tax, which would likely be <a rel=\"noreferrer noopener\" href=\"https:\/\/www.gov.uk\/government\/publications\/india-tax-treaties\/2020-uk-india-synthesised-text-of-the-multilateral-instrument-and-the-1993-double-taxation-convention-in-force#article-11--dividends\" target=\"_blank\">limited<\/a> to a 10% withholding tax on the dividends. UK tax then applies to &#8220;top up&#8221; to the total rate to 39.35%<\/div><\/li><li><span>4<\/span><div>Inheritance tax generally applies at a flat 40% rate. <\/div><\/li><li><span>5<\/span><div>You might think a relatively young couple like the Sunaks wouldn&#8217;t be thinking about inheritance tax; but in my experience the very wealthy absolutely do from an early age.<\/div><\/li><li><span>6<\/span><div>Enacted by <a rel=\"noreferrer noopener\" href=\"https:\/\/www.legislation.gov.uk\/uksi\/1956\/998\/made\" target=\"_blank\">The Double Taxation Relief (Estate Duty) (India) Order 1956<\/a>.<\/div><\/li><li><span>7<\/span><div>At least I don&#8217;t believe other countries have equivalent treaties; there is a similar treaty between the UK and Italy, but in practice that has no effect<\/div><\/li><li><span>8<\/span><div>This also has an inheritance tax benefit; but the 1950s treaty means Ms Murty doesn&#8217;t need any inheritance tax protection<\/div><\/li><li><span>9<\/span><div>Infosys&#8217; disclosure shows the shares held in Ms Murty&#8217;s own name, which on its face suggests there is no trust. However, it is possible Indian disclosure rules &#8220;look through&#8221; 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<\/div><\/li><li><span>10<\/span><div>try a <a rel=\"noreferrer noopener\" href=\"https:\/\/www.google.com\/search?q=excluded+property+trust&amp;oq=excluded+property+trust\" target=\"_blank\">Google<\/a> search for &#8220;excluded property trust&#8221;<\/div><\/li><\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Until we get clear answers, it&#8217;s reasonable to assume the Sunaks are using an offshore trust to avoid \u00a3100m+ of tax.<\/p>\n","protected":false},"author":1,"featured_media":8256,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"ngg_post_thumbnail":0,"footnotes":""},"categories":[88],"tags":[127,126],"jetpack_featured_media_url":"https:\/\/heacham.neidles.com\/wp-content\/uploads\/2022\/10\/Chancellor_Rishi_Sunak_cropped.jpg","_links":{"self":[{"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/posts\/8245"}],"collection":[{"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/comments?post=8245"}],"version-history":[{"count":9,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/posts\/8245\/revisions"}],"predecessor-version":[{"id":8259,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/posts\/8245\/revisions\/8259"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/media\/8256"}],"wp:attachment":[{"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/media?parent=8245"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/categories?post=8245"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/tags?post=8245"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}