In addition to the official crown estate, Queen Elizabeth has amassed tens of millions of pounds in her own cash and assets – much of it from art and racehorses. Most people pay inheritance tax of 40 per cent on anything they inherit above a threshold of £325,000 – meaning the monarchy would be on the hook for millions and the Treasury would face a windfall. However, King Charles is not liable for a penny due to an agreement negotiated between the Crown and John Major’s government in 1993, effectively exempting the monarch from situations like this. How much does Charles inherit from the Queen? In 2011, the Sunday Times Rich List estimated the Queen’s private fortune to be £370 million. But the exact nature of what Charles will get is not public because monarchs’ wills are sealed for decades after their deaths. The new king is certainly at least ready to take ownership of the Queen’s private estate, the Duchy of Lancaster. That fortune, worth more than £650m in March 2022, will pay him an income of around £24m, just like his mother. It plays a similar role to that of the Duchy of Cornwall, which he enjoyed as Prince of Wales and will pass to his son. What is this tax deal with the government? The agreement confirming the monarchy’s exemption from inheritance tax was never written into law, but was part of a more informal “memorandum of understanding” between the government and the palace. Its official name is the ‘Royal Taxation Memorandum of Understanding’. It makes fascinating reading for anyone interested in the taxation affairs of the monarchy. The heritage section of the memo begins by noting that some royal assets are held by the Queen “as a Sovereign rather than as an individual” and that “it would clearly be inappropriate to pay inheritance tax on such assets”. Assets of this type include official residences such as Buckingham Palace, the Royal Archives, the Royal Painting Gallery and other works of art. They are not really personal property of the King or Queen, but of the Crown and therefore not subject to inheritance tax. But what about private property and wealth? The next paragraph of the memorandum also exempts the monarch’s private property from inheritance tax when it is passed on as an inheritance to the next sovereign. It says: “In relation to property which may ordinarily be regarded as private, the arrangements provide that inheritance tax shall not be payable on gifts or bequests from one Sovereign to another, but shall be payable on gifts and bequests to anyone else.” This means that anything Charles inherits from Queen Elizabeth is not subject to inheritance tax. The memorandum also states that “no tax will be payable on assets passing to the Sovereign on the death of a former Sovereign’s wife” – an exception that would apply to Prince Philip’s assets. What is the justification for this? The paper gives two justifications: firstly, it says that the nature of the monarch’s role means it is important for them to have “adequate private resources”. Second, he notes that some of the monarch’s private assets are also used for official functions. As the memorandum states: “The reasons for not taxing assets passing to the next Sovereign are that private assets such as Sandringham and Balmoral have official as well as private use, and that the Monarchy as an institution needs sufficient private resources to to be able to continue to fulfill its traditional role in national life and to have a degree of economic independence from the government of the day’. It should be noted that while only some of the monarch’s assets have “both official and private” uses, all are exempt from inheritance tax – whether it’s Sandringham House or a racehorse. However, the memorandum says that “the government believes that the arrangements set out in the attached memorandum of understanding are fair and appropriate, taking into account, as the case may be, the unique circumstances of the monarchy.” Does the Queen have to legally pay taxes? The wider context of the inheritance tax memorandum is that the monarchy is not legally required to pay any income tax, capital gains tax or inheritance tax – because the relevant acts of parliament do not apply to it. However, the sovereign pays income and capital tax on a “voluntary basis” and inheritance tax on the basis described in the memorandum, a basis that did not include the death of the monarch and the transfer of his wealth to the next monarch.
