Rishi Sunak is benefitting from a lower effective tax rate due to most of his earnings coming from capital gains rather than employment income, a tax expert has said.
Dan Neidle said it is a “very good question” whether the law should continue to allow capital gains to be taxed less than employment income.
It comes after the Prime Minister published his long-awaited tax documents on Wednesday, showing that he paid more than £1 million in UK tax over the previous three financial years on earnings totalling £4.7 million.
The documents show that Mr Sunak made nearly £2 million through income and capital gains in 2021/22.
His income from dividends was £172,415, and from capital gains was £1.6 million.
For that same financial year, it showed that he paid £432,493 in tax.
Speaking to Sky News, Mr Neidle said the Prime Minister paying an effective rate of 22% is “not because he has done anything clever or because he is avoiding tax, 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.
“And, weirdly, Mr Sunak, who benefits from that low rate, is also the man who has the power to change it.”
The Prime Minister dodged a question about whether capital gains tax should be higher during a visit to North Wales.
He 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.”
The Prime Minister’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.
“Now the Prime Minister has published his, I will publish mine,” he said after giving a speech in Stoke-on-Trent on Thursday.
“I hope to be able to do that later on today, so that’s very straightforward.”
Former business secretary Jacob Rees-Mogg argued that Mr Sunak’s healthy earnings show him to be “the sort of person we want running our country”.
The senior Tory MP told TalkTV: “I think it is really good news that you have somebody of the ability and wealth-creating enterprise of Rishi Sunak as our Prime Minister.
“I think the fact he has £5 million of income is good news and should give us confidence in the calibre of people going into British politics.”
Most of Mr Sunak’s earnings related to a US-based investment fund listed as a blind trust, according to the summary.
“This kind of blind arrangement, I don’t think anyone does it except politicians and it is not a term of art – there is no such legal thing as a blind trust,” he said.
“So exactly what they are legally is slightly fuzzy.”
Mr Sunak, who is regarded as among the richest inhabitants of 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.
He repeatedly promised to do so in recent months, and faced continued pressure to release the documents when it emerged that former cabinet minister Mr Zahawi settled an estimated £4.7 million bill with HM Revenue & Customs while he was chancellor.
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 HMRC, 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 as it came on the same day as former prime minister Boris Johnson faced questioning over allegations that he misled Parliament about lockdown parties in Downing Street during the pandemic.
The Prime Minister’s spokesman said: “There was a number of bits of work to finalise and make this as transparent and easy to access as possible. The returns were published once that was ready.”
Political analyst Lord Hayward was non-committal when asked on Sky News whether Mr Sunak’s sizeable earnings will have an impact in the polls.
The Tory peer told Sky News: “It doesn’t come as a surprise that he is a rich man.”
He said inflation being found to have risen in February indicated that Mr Sunak, who has made slashing inflation by half a key goal of his premiership, will delay the next general election until October or November 2024.
Expectation had grown that the Prime Minister would call the next Westminster election, which can take place no later than the end of January 2025, in summer or even spring next year.