Capital gains: Sunak and Starmer’s tax bills show how the system benefits the rich

By Arun Advani, University of Warwick, Andrew Lonsdale, London School of Economics and Political Science, Andy Summers, London School of Economics and Political Science

Rishi Sunak paid over £500,000 in UK taxes last year, recent documents published by the government revealed. As well as displaying a considerable contribution to the nation’s coffers, the details of the prime minister’s financial affairs also highlighted a common perk enjoyed by many wealthy British citizens who have substantial investments: that their tax bill is a fraction of what it would be if they received all of their money as earnings from their day job.

For while the prime minister’s salary of just under £140,000 is subject to income tax, Sunak also received nearly £1.8 million from his stake in a US-based investment fund. This “capital gain” was taxed at 20%, far below the 45% rate of income tax that Sunak would have paid if that sum had been treated as income in the UK tax system.

The leader of the opposition Keir Starmer also benefited from low capital gains tax rates. Two thirds of his £404,030 total remuneration in the last tax year came from the sale of a field, on which the appropriate capital gains tax was paid.

By taking all sources of income and capital gains together, both party leaders paid an effective tax rate of less than 25% on the money they made in 2023.

Some economists and politicians – both left and right – think capital gains and income should be taxed at the same rates. But this idea is often met with concern that such reform could prove costly for “ordinary” taxpayers.

Part of this worry seems to stem from a misconception about how capital gains tax is applied. And because the wealth of the British middle class is largely tied up in housing, some fear that homeowners selling their residence (when downsizing for retirement for example) will be hit by a sizeable tax bill.

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