Chancellor Rishi Sunak has continued to come under scrutiny over his wife’s tax-reducing non-domiciled status, as he hit out at “unpleasant smears” while No 10 and Labour denied being behind the leaks.

He insisted Akshata Murty, who is estimated to be worth hundreds of millions of pounds, had done nothing wrong by choosing the arrangement exempting her from paying tax in the UK on foreign income.

Mr Sunak blamed Labour for the “awful” response, but his allies told newspapers they suspect No 10 of trying to undermine the Chancellor, who is seen as the favourite to succeed Boris Johnson in any leadership challenge.

Ms Murty, the fashion-designer daughter of a billionaire, who married the Chancellor in 2009, confirmed she holds non-dom status after the Independent website revealed the arrangement on the day a national insurance hike hit millions of workers.

In an interview with The Sun, Mr Sunak said: “To smear my wife to get at me is awful.

“Every single penny that she earns in the UK she pays UK taxes on, of course she does.

“And every penny that she earns internationally, for example in India, she would pay the full taxes on that.”

Mr Sunak said his wife was entitled to use the non-dom arrangement as she is an Indian citizen and plans to move back to her home country to care for her parents.

He insisted she is not attempting to pay less tax, saying “the dates don’t make a difference”, amid speculation she potentially avoided up to £20 million in UK tax.

Asked if he thought his family were victims of a Labour smear campaign, Mr Sunak replied: “Yeah.”

But a Labour source responded: “The Chancellor would do better to look a little closer to home.

“It’s clear that No 10 are the ones briefing against Rishi Sunak and, after his failure to tackle the cost-of-living crisis, you can understand why.”

The Daily Telegraph quoted an ally of the Chancellor suggesting it is “all coming from No 10” because “Rishi’s the only credible show in town”.

A No 10 spokeswoman denied the Prime Minister’s office was sneaking out the allegations, saying: “It is categorically untrue that No 10 is behind the briefings.

“The Prime Minister and Chancellor are united.”

A Treasury source said: “Neither Rishi nor anyone in his team believes this is coming from no 10.”

The Sunaks were also facing questions over past arrangements in the US, where they met while he was studying at Stanford University and where they own a home, in Santa Monica, California.

Sky News reported that the couple held green cards permitting US residence until more than a year into his chancellorship, before giving them up.

The US inland revenue says anyone who has a green card is treated as a lawful permanent resident and is considered a “US tax resident for US income tax purposes”.

A source close to Mr Sunak said “they do not hold green cards” now but did not say when they were given up or whether he paid US tax while Chancellor.

Senior Conservative MP Tobias Ellwood said non-dom rules are outdated and should be reviewed.

The chairman of the Commons Defence Select Committee told Sky News: “If there are bigger, more fundamental questions about the existence of the non-dom status, that is something for us as a country – perhaps and indeed Parliament – to debate.

“In my view, they are out of date, they do need to be reviewed.”

Labour’s shadow attorney general Emily Thornberry told BBC Radio 4’s Today programme: “In the end, we have somebody who’s been living here for eight years, raising her children here, living at … Downing Street in accommodation provided by the taxpayer and aspiring to be the wife of the next prime minister, and yet she says that she isn’t a permanent resident of this country.”

She pointed to the ministerial code mentioning the financial status of ministers’ spouses is relevant because “there can be a conflict of interest”.

Ms Murty is reported to hold a 0.91% stake in Infosys, an IT business founded by her father.

She was born in India so UK Government rules allow her to list that country, rather than the UK, as her permanent residence, meaning different tax rules on foreign earnings apply.

The arrangement means her permanent home is considered to be outside the UK despite the Sunaks living in Downing Street.

Ms Murty pays an annual levy of £30,000 to the UK Government to keep her non-dom status, her spokeswoman confirmed.

The status will automatically cease once she has resided in Britain for 15 years, which will be in 2028.

Labour leader Sir Keir Starmer has said Mr Sunak could be guilty of “breathtaking hypocrisy” if his wife was reducing her own tax bill as the Chancellor increased national insurance for millions of Britons.

Prime Minister Boris Johnson sidestepped questions on Ms Murty’s tax situation, saying it is important to keep families out of politics “if you possibly can” when asked by broadcasters.