Robson Walton, owner of supermarket chains Wal-Mart and Asda, has amassed a fortune worth £45.3bn - £8bn more than Gates.
Gates' fall from the top spot is accredited by the paper on the fall in technology stocks, which has hit Microsoft hard. His personal wealth has fallen from £53bn to £37.5bn, according to the Sunday Times.
The richest man in Britain is the Duke of Westminster whose £4.4bn fortune from property in the Mayfair and Belgravia areas of London has moved him up one place into top spot.
The newspaper's annual Rich List, published on Sunday, reveals the 1,000 richest people in Britain, the richest Britons living abroad and the richest people in the world. But the figures are estimates with few of those on the list willing to confirm details of their fortunes.
Worldwide, the list shows some of the wealthiest people come from backgrounds as varied as computers, oil, supermarkets, confectionery and the media.
To earn a place in the top 1,000 in the UK, individuals need to be worth more than £35m.
The Queen, who celebrated her 75th birthday on Saturday, has seen her fortune rise by £25m this year to £300m, pushing her up one place to equal 105th.
Author JK Rowling, the creator of the best selling Harry Potter books, is one of only 69 women on the list.
Her wizard writing skills have earned her £65m.
The Duke of Westminster moves up from second place overtaking Hans Rausing's food packaging business which had been top of the list for the last two years.
A rise in the property market has seen the duke's fortune rise from £3.7bn last year to £4.4bn this year.
Rich Brits
From the sports world, motor racing chief Bernie Ecclestone has increased his wealth by 50% and moves up from sixth to third place with £3bn.
In fourth place - the same position as last year - is Lord Sainsbury who stands at £2.9bn, while Joseph Lewis's financial and investment interests move him up one place to fifth, worth £2.2bn.
Lewis, based in the Bahamas, tops the list of richest Britons living abroad.
The profits from his company Enic has enabled him to buy a 30% controlling stake in Tottenham Hotspur football club.
He also paid £1.4m last year to play a round of golf with world number one Tiger Woods.
But this year the number of British billionaires overall has dropped from 26 last to 22.
Dwindling heirs
Like Walmart and Asda tycoon Walton, the richest businessmen in Europe also amassed their wealth through the supermarket industry.
Karl and Theo Albrecht, founders of Aldi, are worth £13.3bn which puts them in ninth equal place in the world's richest top 10.
But the survey, compiled by wealth expert Philip Beresford, shows a marked drop in the ranks for inherited wealth.
Only 241 of the 1,000 in the list inherited their fortunes - the smallest proportion ever.