Abstract Background People from South Asian and black minority ethnic groups are disproportionately affected by the COVID-19 pandemic. It is unknown whether deprivation mediates this excess ethnic risk. Methods We used UK Biobank with linked COVID-19 outcomes occurring between 16th March 2020 and 24th August 2020. A four-way decomposition mediation analysis was used to model the extent to which the excess risk of testing positive, severe disease and mortality for COVID-19 in South Asian and black individuals, relative to white individuals, would be eliminated if levels of high material deprivation were reduced within the population. Results We included 15 044 (53.0% women) South Asian and black and 392 786 (55.2% women) white individuals. There were 151 (1.0%) positive tests, 91 (0.6%) severe cases and 31 (0.2%) deaths due to COVID-19 in South Asian and black individuals compared with 1471 (0.4%), 895 (0.2%) and 313 (0.1%), respectively, in white individuals. Compared with white individuals, the relative risk of testing positive for COVID-19, developing severe disease and COVID-19 mortality in South Asian and black individuals were 2.73 (95% CI: 2.26, 3.19), 2.96 (2.31, 3.61) and 4.04 (2.54, 5.55), respectively. A hypothetical intervention moving the 25% most deprived in the population out of deprivation was modelled to eliminate between 40 and 50% of the excess risk of all COVID-19 outcomes in South Asian and black populations, whereas moving the 50% most deprived out of deprivation would eliminate over 80% of the excess risk of COVID-19 outcomes. Conclusions The excess risk of COVID-19 outcomes in South Asian and black communities could be substantially reduced with population level policies targeting material deprivation.