British Prime Minister Rishi Sunak’s family is exempt from inheritance tax due to a provision known as the domicile rule. This rule is particularly beneficial to families of Indian-born individuals living in Britain.
The considerable wealth, including an inherited stake in Infosys, amassed by the Sunak family will not be subjected to tax on foreign assets upon inheritance. Critics argue this rule favors ultra-high-net-worth individuals with foreign assets, leading to unequal tax treatment. This has prompted calls for a reevaluation and revision of these tax policies.
This tax exception can be traced back to a 1956 agreement meant to prevent double taxation of wealth after death for Indian citizens living in the UK and vice versa for UK nationals in India. Despite India ending its inheritance tax, this treaty provides substantial tax relief for wealthy Indian families in Britain.
While initially intended to protect the vulnerable, critics argue the treaty now benefits the affluent. As a result, policymakers and tax authorities are exploring changes to ensure a fair tax system. However, the progress has been slow due to the complexities of international laws and potential diplomatic challenges.
As global wealth disparities come to light, the future of this treaty hangs in the balance.
The debate revolves around wealth inequality and whether this treaty exacerbates the issue. Christopher Thorpe from the Chartered Institute of Taxation argues that reforming this rule is primarily a political issue.
Akshata Murty, Rishi Sunak’s wife and daughter of an Indian billionaire, committed to paying tax on income from foreign sources in 2022. However, her family still significantly benefits from tax savings due to this treaty loophole. Despite her giving up her non-dom status, Murty’s family continues to reap financial benefits, intensifying debates about tax fairness.
The substantial tax savings from their inheritance tax exemption, which includes a 0.94% share in the IT company Infosys, might save the family hundreds of millions in taxes. This preferential treatment has drawn attention to more equitable tax policies.
Plans are underway to eliminate non-dom status and move to a residency-based system, taxing UK residents who have lived in the country for over ten years. However, it’s unclear how this will impact double taxation provisions. The transition period is expected to be gradual to minimize any potential financial shocks.
Some business groups and overseas investors have expressed concerns over the new policy. Despite fears of potential economic adversity, the government asserts that changes are vital to ensure tax fairness and equity. The government also promises to monitor any negative impacts and make necessary adjustments closely.
