UK's Rishi Sunak makes U-turn over wife's tax status

The controversy has caused the Chancellor of the Exchequer’s fortunes to sink

Rishi Sunak and his wife Akshata Murty. PA

Rishi Sunak, the UK Chancellor of the Exchequer, has been accused of political hypocrisy after being forced to make an about-turn on his wife’s tax residency status.

Akshata Murty announced late on Friday she would start paying UK tax on “all worldwide income” because she did not want her tax status to become a distraction to her husband’s political career.

More pressure was added on Saturday as political opponents tried to work out what has been agreed, as the couple have kept her non-domicile status while agreeing to being taxed more.

The controversy has caused Chancellor Sunak’s fortunes to transform from potential prime minister to a man barely hanging on to his job.

Mr Sunak was criticised for a lack of transparency after his wife was revealed to have secured for herself a “non-domicile” status — which exempts people from paying UK taxes on overseas income.

Rishi Sunak and his wife Akshata Murty initially refused to change her tax residency status. Reuters

The arrangement is legal, but allows Mr Sunak to raise taxes on voters while some wealthy people take advantage of loopholes, as his wife has done.

The opposition Labour Party said Mr Sunak had “come out on a number of occasions to try to muddy the waters” around his family's tax affairs.

“The chancellor has not been transparent,” said Louise Haigh, an MP.

“It is clear that was legal. I think the question many people will be asking is whether it was ethical and whether it was right that the Chancellor of the Exchequer, while piling on 15 separate tax rises to the British public, was benefiting from a tax scheme that allowed his household to pay significantly less to the tune of potentially tens of millions of pounds less.”

Ms Murty, who retains her Indian citizenship, said it had become clear that there were many who believed the tax domicile was not compatible with her husband's position in charge of the nation's finances.

“I understand and appreciate the British sense of fairness and I do not wish my tax status to be a distraction for my husband or to affect my family,” she said. “I do this because I want to, not because the rules require me to.”

As chancellor, Mr Sunak oversaw a large programme of government spending during the coronavirus pandemic, but is now tightening the belt as Britons face the worst cost-of-living crisis in generations.

Mr Sunak is a millionaire banker. His wife is the daughter of Indian billionaire N.R. Narayana Murty, co-founder of the international IT company Infosys.