You might not expect to stumble upon financial advantages that harken back to colonial times in the modern-day UK. Yet, a peculiar “loophole” seems to promise exactly that: a potential windfall in inheritance tax savings for wealthy Indian families residing within the Britain’s shores. And, the Telegraph points out, that could include Rishi Sunak’s family.
The Legacy of a Historic Agreement
To truly grasp the significance of this situation, we need to travel back in time slightly, to 1947. In the wake of India achieving its independence from colonial rule, an agreement was solidified between the UK and India. The purpose of this pact was to prevent British and Indian citizens living in either country from being charged death duties – or inheritance taxes – twice.
However, this treaty has held strong, even decades after India decided to do away with inheritance tax back in the late 1980s. The ongoing existence of this technicality is causing murmurs amongst tax lawyers, who predict this oddity could potentially spare Rishi Sunak’s family the expense of hundreds of millions of pounds in taxes.
The Growing Inheritance Tax Burden on Middle Class Families
One of the driving forces behind this anti-inheritance tax movement is the mounting burden it is putting on the shoulders of Britain’s middle-income families. A decade-long surge in properties’ selling prices, coupled with an unwavering freeze on allowances, is forcing more households than ever into the unenviable position of having to fork out for this pricey levy.
Echoing this sentiment, Conservative MPs have recently proposed raising the qualifying threshold to a whopping £1m, hinting this could prove instrumental to the party’s success in the upcoming election. Grant Shapps encapsulated the issue succinctly, saying, “People know that there’s something deeply unfair about being taxed all their lives and then being taxed in death as well.”
How Sunak’s Family Could Profoundly Benefit
In the midst of this political storm, let’s pivot back to Rishi Sunak and his family — more specifically, his wife Akshata Murty. As the daughter of N.R Narayana Murty, founder of the Indian IT behemoth Infosys and multi-billionaire, Ms. Murty inherits substantial wealth. Forbes estimates Mr. Murty’s net worth to be around $4.1bn (£3.3bn) while Ms. Murty, according to the Infosys’s recent filing, holds about 0.93pc shares of the company, translating roughly to £600m.
Enter the aforementioned inheritance tax loophole: If her estate boasts assets nestled in India, it might steer clear from having to settle an inheritance tax bill. This alone could net the family a tax savings of around £240m only on shares.
Christopher Thorpe from the Chartered Institute of Taxation summarises this situation: “It is a loophole from an old treaty that was signed before all the rules changed.” He adds that the treaty doesn’t exclusively benefit the ultra-rich; however, in the Sunak’s case, it could potentially save them hundreds of millions.
Understanding Inheritance Tax in the UK
In Britain, inheritance tax is currently pegged at 40pc for any wealth exceeding the £325,000 threshold. On top of this, an extra allowance of £175,000 is permitted towards the main residence if it’s passed on to direct descendants.
But here’s the kicker: this threshold has remained stagnant since 2009. Further solidifying this status quo, Chancellor Jeremy Hunt froze it until 2028, which, as you can imagine, will push thousands of additional families into the inheritance tax sphere.
The Government Revenue Perspective
From the government’s perspective, this tax provides significant revenue annually. Last year alone, it funnelled a handsome £7.1bn into the government’s coffers, and projections suggest a steadily climbing trajectory, estimating figures to reach £8.4bn by 2028.
Repercussions for Ms. Murty and the Sunak Family
As we return to Akshata Murty and her vast inheritance, it’s intriguing to explore the benefits she might enjoy. If her billionaire father resides in India at the time of his demise, legal experts suggest she might sidestep paying any inheritance tax on the inherited wealth.
Financial advisor Sean McCann from NFU Mutual explains, “In the UK, inheritance tax is charged on the estate of the deceased, rather than the recipient, so Akshata Murty would not face a charge on any inheritance she receives from her father’s estate.”
In a nutshell, this colonial relic from the past might enable a lucky few to dodge the national debate wrangling over the question of inheritance tax in the UK, neatly sidestepping the growing pressure it places on more ordinary British households. A strange twist of tax heritage indeed!