Akshata Murty, estimated to be worth hundreds of millions of pounds, confirmed the arrangement that means she is not legally entitled to pay tax in Britain on foreign income.
Ms Murty, the fashion-designer daughter of a billionaire who married the Chancellor in 2009, insisted she pays taxes on all UK income and said the set-up is required because she is an Indian citizen. However, experts disputed this.
Business Secretary Kwasi Kwarteng defended the arrangement as “in order” as he struck out at the scrutiny of her finances as “completely unfair”, but was unable to rule out the status being used to reduce tax.
Labour frontbencher and Yorkshire MP Ed Miliband said questions were legitimate as Mr Sunak’s immediate family “are sheltering a large part of their income from UK taxes”.
Ms Murty confirmed her “non-dom” status after the Independent website first reported it on the day the Chancellor’s national insurance hike took effect on Wednesday.
The arrangement means her permanent home is considered outside the UK despite the Sunaks occupying Downing Street.
Mr Miliband, the shadow climate change secretary, told BBC Breakfast: “The issue here that Rishi Sunak needs to answer – and I think we do need to be cautious about people’s spouses being brought into public domain but I think it is a legitimate question – which is, at a time when people are facing incredibly strained finances and Rishi Sunak is raising taxes, he says to pay for public services, we’ve got his immediate family sheltering a large part of their income from UK taxes.
“I think there is a legitimate public question about whether that is the right decision because he’s the guy asking us to pay more in taxes.”
Mr Kwarteng rejected the allegation as untrue, saying “sheltering sounds as if you’re evading things”.
“I think she’s been very clear, she’s been very transparent, the Chancellor’s been very transparent, and this non-dom status has been part of the UK tax system for more than 200 years,” he told BBC Breakfast.
The Cabinet minister said she pays tax “abroad” but was unable to say where, when asked if she pays all foreign tax in India or in a tax haven such as the Cayman Islands.
Asked on BBC Radio 4’s Today programme if Ms Murty is a tax avoider, Mr Kwarteng responded: “I don’t know anything about her tax affairs.
“What I do know is that she has been very clear about the fact she’s an Indian citizen, once she’s lived here for 15 years the non-domiciled status falls away so that will happen in a few years, I don’t know when.
“As far as I’m concerned that’s good enough for me and I think we can move on from that story.”
A spokeswoman for Ms Murty confirmed she holds non-dom status after reports surfaced.
“Akshata Murty is a citizen of India, the country of her birth and parents’ home,” the spokeswoman said.
“India does not allow its citizens to hold the citizenship of another country simultaneously.
“So, according to British law, Ms Murty is treated as non-domiciled for UK tax purposes.
“She has always and will continue to pay UK taxes on all her UK income.”
Professor Richard Murphy, the Sheffield University academic who co-founded the Tax Justice Network, questioned her statement, insisting that being a non-dom is a “choice” she can relinquish.
“Domicile has nothing to do with a person’s nationality,” he said.
“In other words, the claims made in the statement issued by Ms Murty are wrong, and as evidence, just because a person has Indian citizenship will never automatically grant them non-dom status in the UK.”
It is understood Mr Sunak declared his wife’s tax status when he became a minister in 2018 and the Treasury was also aware so that any potential conflicts could be managed.