Lauren Almeida
Tue, September 26, 2023
Wealthy Indian families living in Britain stand to inherit fortunes tax-free thanks to a “loophole” dating back to colonial times.
After India gained independence in 1947, an agreement was struck to ensure British and Indian citizens living in either country did not end up paying death duties twice.
But the treaty has remained in place, even after inheritance tax was abolished in India more than three decades ago. And tax lawyers suggest the technicality could possibly save Rishi Sunak’s family hundreds of millions of pounds.
It comes as the Prime Minister is facing pressure to abolish inheritance tax in Britain after calls from The Telegraph and more than 50 Tory MPs to put an end to the death duty.
Mr Sunak is reportedly considering cutting the levy in the March Budget and might commit to scrapping it entirely in the party manifesto ahead of the next General Election.
Inheritance tax in Britain is increasingly falling upon more and more ordinary, middle class families, thanks to a deep freeze on allowances and a boom in property prices over the past decade.
This month, Conservative MPs said increasing the threshold to £1m could win the party the next election.
Defence secretary Grant Shapps this week said: “People know that there’s something deeply unfair about being taxed all their lives and then being taxed in death as well.”
Akshata Murty, Mr Sunak’s wife, is the daughter of N.R Narayana Murty, the multi-billionaire founder of the Indian IT giant Infosys.
Mr Murty has an estimated net worth of $4.1bn (£3.3bn), according to Forbes. Ms Murty owns a 0.93pc share of Infosys, according to the company’s latest filings, which is estimated to be worth around £600m.
However, her estate may not be liable to pay an inheritance tax bill on assets held in India – potentially saving the family £240m on the shares alone.
Christopher Thorpe, of the Chartered Institute of Taxation, said that while the treaty did not just benefit very wealthy families, Mr Sunak’s family could save hundreds of millions of pounds because of the rule, adding: “It is a loophole from an old treaty that was signed before all the rules changed.”
Inheritance tax is levied at 40pc on wealth over the £325,000 threshold. Individuals have an extra £175,000 allowance towards their main residence if it is passed to direct descendants.
The threshold has remained at £325,000 since 2009 and Chancellor Jeremy Hunt has frozen it until 2028, in a move that is expected to drag thousands of more families into paying the levy.
The Government collected £7.1bn in death duties last year. It is forecast to hit £8.4bn by 2028, according to official projections.
Ms Murty also may not have to pay inheritance tax on whatever her billionaire father chooses to leave her if he is domiciled in India, experts have said.
Sean McCann, of the advice firm NFU Mutual, said: “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.”
Mikhail Bakunin Archive
ABOLISH INHERITANCE
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