Rishi Sunak faces criticism for level of tax paid on capital gains
Rishi Sunak has said he is "pleased" to have published his tax returns "in the interests of transparency," despite mounting criticism that they show he benefits from a lower effective tax rate.
On Wednesday, the prime minister released documents showing he paid £432,493 in tax in the 2021/2022 financial year on £2 million of earnings, made through income and capital gains.
The majority of Mr Sunak's earnings in that financial year were made up of capital gains (£1.6 million) and dividends (£172,415), rather than his salary as an MP, and later, PM.
During the previous three years Mr Sunak paid more than £1m in UK tax on earnings totalling £4.7m, the documents also revealed.
The prime minister refused to answer whether tax should be higher on earnings registered as capital gains
Dan Neidle, a tax lawyer, said it was a "very good question" whether the law should continue to allow capitals gains to be taxed less than employment income.
Mr Neidle, whose work helping to expose Nadhim Zahawi's tax affairs resulted in the former Conservative Party chairman's resignation, said Mr Sunak's effective rate of tax was far lower than if the majority of those earnings had been made via employment.
Speaking to Sky News, Mr Neidle said the Prime Minister paying an effective rate of 22% was "not because he has done anything clever or because he is avoiding tax".
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He continued: "It is because in this country we tax employment income at up to 47% but capital gains on investments at only 20%.
"That is why his effective rate is so low.
"Whether that is a fair result, whether the law should be like that, is a very good question.
"And weirdly Mr Sunak, who benefits from that low rate, is also the man who has the power to change it."
Understanding tax rates
Income tax rates
Income tax rates
The basic rate of tax is set at 20% and applies to earnings between £12,571 to £50,270. The first £12,570 you earn is tax-free. Every pound you earn above £50,270 then falls under the next tax bracket. The higher tax rate is set at 40%, and applies to every pound earned between £50,271 and £150,000. The additional tax rate, which applies to the highest earners, applies to any income over £150,000. The term 'marginal tax rate' is commonly used to describe other automatic wage deductions, like student loan repayments and National Insurance, to capture the amount docked from a worker's pay.
Dividend tax rates
Dividend tax rates
Dividend taxes apply to the sums paid to investors for owning shares in a company.
There is a £2,000 tax-free allowance tax rate, and then dividends are taxed based on which income tax band you fall under. Earners taxed at the basic rate have dividends taxed at 8.75%, higher rate income taxpayers pay 33.75%, and additional rate taxpayers pay 39.35%.
Government-backed savings schemes such as pensions and ISAs provide separate tax-free allowances for dividends and interest payments.
Capital Gains Tax
Capital Gains Tax
The capital gains tax (CGT) is the tax on the profit generated when you sell something that has increased in value - although some assets can be sold tax-free.
Gifts between spouses, for example, are generally tax-exempt, until they later sell the asset.
Presently, you only have to pay CGT on overall gains above your annual CGT tax free allowance of £12,300, but this will be cut to £6,000 in the new tax year, which begins April 5, 2023, then will be cut again to £3000 from 2024/2025.
If you’re a higher or additional rate taxpayer you’ll pay: 28% on your gains from residential property, and 20% on your gains from other chargeable assets.
Basic rate income taxpayers pay 10% CGT on any gains that still fall within that tax threshold, after personal allowance and any income tax reliefs. That rises to 18% on residential property sales.
Any remaining gains that fall outside the basic income taxpayer threshold attract the higher rates above.
Mr Sunak dodged a question about whether capital gains tax should be higher during a visit to North Wales.
The prime minister told broadcasters: "I said I would publish my tax returns. I was pleased to be able to do that yesterday in the interest of transparency.
"And the most important thing is what am I doing to help the people of this country with the cost of living. That's their number one priority."
Reacting to the publication of Mr Sunak's returns on Wednesday, deputy Labour leader Angela Rayner said the details "reveal a tax system designed by successive Tory governments in which the prime minister pays a far lower tax rate than working people".
Her comments were read by some commentators as a signal that Labour could choose to reform the tax rate if the party gets to power.
Mr Sunak, who is regarded as among the richest inhabitants ever to occupy Downing Street, first pledged to publish his tax returns during his unsuccessful campaign to become Tory leader last summer, in an attempt to put transparency at the heart of his bid.
Mr Sunak’s finances also faced scrutiny while he was chancellor, when his wife's “non-dom” status was revealed.
Akshata Murty's tax arrangement reportedly saved her millions. Following the controversy, Ms Murty, a fashion designer billionaire’s daughter, declared she would pay UK taxes on all her worldwide income.
Rather than a full tax return, No 10 published "a summary" of Mr Sunak's UK taxable income, capital gains and tax paid as reported to HM Revenue & Customs on Wednesday, prepared by accountancy service Evelyn Partners.
Critics questioned the timing of the release, accusing No 10 of attempting to bury the tax statement under other headlines.
Its publication came on the same day as former prime minister Boris Johnson faced questioning over allegations he misled Parliament about Downing Street lockdown parties during the pandemic.
The PM's official spokesman said the returns showed Mr Sunak paid a “considerable amount” in capital gains tax.
“It is not unusual for savers to choose to put their investments in funds which focus on delivering long-term growth rather than short-term income generation,” the spokesman said.
Labour leader Sir Keir Starmer has vowed to follow Mr Sunak’s example by publishing his tax return, which he hoped to release later on Thursday.
He too swerved a question on whether the capital gains tax rate should be reviewed.Answering questions after giving a speech in Stoke-on-Trent on Thursday, he said the PM's financial details are for “others” to analyse.
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