Most newspapers have reported that Sunak paid 22% tax on his income last year.
And some have pointed out that many ordinary taxpayers pay a far higher percentage than that.
This article takes a different angle, it asks “Does Sunak really pay 22% tax?”
Let us assume that:
- The facts as generally reported are broadly accurate;
- They are also reasonably representative of Sunak’s finances in a normal year.
On that basis, we conclude that a realistic tax rate for Sunak in a normal year is under 1%.
What is generally reported
The Financial Times reported:
“The summary figures, made public on Wednesday afternoon, show that the prime minister received £329,561 in income for the year and earned capital gains of £1.64 million. … Sunak’s UK tax bill for the 2021-22 tax year totalled £432,493. He paid £120,604 income tax, mostly on his £156,163 salary and £172,415 dividend income. He paid £325,826 capital gains tax on the increased value of his blind trust.”
And other papers carried similar summaries.
The numbers above can therefore be taken as reliable. The one thing which is not quite right is the statement “He paid £325,826 capital gains tax on the increased value of his blind trust.” Capital Gains Tax is paid on realised gains, not unrealised gains. It is only a small part of his blind trust which he realised (because he wanted to spend some of it) and on which he paid tax. The rest was unrealised and not liable for tax.
So let us take a closer look at that.
What probably happens in a normal year
Sunak’s net worth is widely reported to be around £730 million. And it is now invested in a blind trust so that he cannot be accused of conflict of interest. That means that neither he nor we know exactly how it is invested and what returns he can expect.
But we can make some educated guesses. We do know what investment returns the stock market delivers in a normal year, and if we assume that his trust is invested mainly in US and UK stocks, we can estimate his returns as follows:
In a normal year, Sunak’s true economic income is probably around £67 million.
What tax rate does Sunak really pay?
On that basis, the effective tax rate Sunak pays on his true economic income in a normal year (assuming that, like this year, he realises around £1.6 million and has income of around £400,000) is around 0.7%.
In other words, on these assumptions, he pays well under 1% of his true economic income in tax. To be clear, this is perfectly legal: it is not tax evasion, it is just the way the tax system has been set up.
For Sunak, as for anyone else whose wealth is close to or over £1 billion, the amount of tax they pay on their economic income is largely a matter of choice. And many choose to pay less than 1%.
If you think this is wrong, take a look at the 99% Organisation and join us.
PS: Some readers have asked what this means for tax policy. The article is not intended to give a prescription for tax changes (which are ferociously complex). In particular, one should not conclude from the article that we ought to be taxing unrealised gains. But we should conclude that without some form of wealth-related tax, the wealthiest will pay far lower tax rates on total economic income than the rest.