Millions could be taxed at higher rate than Rishi Sunak

“Only the little people pay taxes” – Owl

Up to a quarter of taxpayers could be paying a higher effective tax rate than Rishi Sunak, research suggests.

Henry Zeffman

Nurses, teachers and paramedics are among millions of Britons whose salaries are taxed at a higher rate than the prime minister’s investment income.

Sunak became the first prime minister since David Cameron to publish a tax return last month. It showed his income from shares dwarfed his ministerial salary. The £1.6 million in capital gains Sunak reported for last year was taxed at 20 per cent, whereas the overall tax rate on his other income was 37 per cent.

The return showed that Sunak paid tax at an effective rate of 22 per cent on his total earnings and gains. According to research by the Economic Change Unit, a campaign group, this is approximately the same effective tax rate as those on salaries of about £40,000 a year, about a quarter of taxpayers.

Like Sunak, some of those with incomes above £40,000 will be taxed at a lower rate because a portion of their income comes from capital gains or dividends, although this is likely to be a small percentage. Government statistics suggest that few outside the top percentage of earners derive a significant income from investments.

The research also found that more than half of those who live in the same constituency as 10 Downing Street — the Conservative-held Cities of London & Westminster — are likely to be paying a higher effective tax rate than Sunak.

The residents of the constituency have a median income of £46,000, the highest of any UK constituency, according to data for the 2020-21 tax year. Those earning £46,000 pay an effective tax rate of 33 per cent.

Sunak and his wife, Akshata Murty, are estimated to have combined wealth of £730 million.

The research is in support of Stop the Squeeze, a campaign calling on the government to increase wealth taxes.

Gemma McGough, an entrepreneur and member of the Patriotic Millionaires group that is supporting the campaign, said: “The fact those with high levels of wealth can pay lower tax rates than millions of people who work hard and have little economic security is a sign of a tax system that is broken.”

Mike Clancy, the general secretary of the trade union Prospect, said: “Prospect members doing the right thing, paying their tax and working exceptionally hard to keep government functioning are having to strike because their pay has fallen so far behind inflation. It will be galling for them that the prime minister pays a significantly lower effective tax rate than they do.”

When Sunak released his tax return, Downing Street said it was “entirely routine for savers to choose to invest in funds that focus on long-term growth rather than short-term dividend income. The tax return clearly shows that a considerable amount of capital gains tax is being paid.”

At the time, Dan Neidle, founder of Tax Policy Associates, said: “In paying capital gains tax at 20 per cent, Sunak is doing nothing remotely wrong or improper, but it’s hard to justify this disparity and it’s in Sunak’s gift to end it.”