Why King Charles III can avoid paying inheritance tax on the Queen’s fortune
Residents of the UK pay 40% inheritance tax on all parts of an estate above the country’s tax exemption threshold of £325,000.
But not the reigning monarch.
Following the death of Queen Elizabeth II last week, the new King Charles III ascended the throne and took possession of his mother’s considerable estate. And he won’t have to give the government a dime for anything.
Now that he is king, Charles automatically takes on the title of Duke of Lancaster and its corresponding dukedom, valued at £641 million, or $750 million. The duchy was created in the 13th century to be passed down from monarch to monarch and to provide a stable source of income for the royal family.
But while a significant portion of the world’s ultra-wealthy normally jump through considerable hoops to keep their inheritance tax payments to a minimum, a tweak to the Royal Succession Act means King Charles III will not won’t have to deal with that particular headache, and it will be perfectly legal.
It all has to do with a law passed in the 1990s by then-Prime Minister John Major who might not have anticipated that 30 years later a nonagenarian queen would die and be succeeded by a king. septuagenarian.
In 1993, Prime Minister Major announced an amendment to the Royal Inheritance Act intended to protect royal family assets from obliteration should several monarchs die in quick succession.
The layout was first used in 2002, when Queen Elizabeth II’s mother died. The Queen Mother bequeathed her daughter around £50m worth of artwork, antiques and racehorses, and thanks to the amendment the Queen was able to save around £20m in taxes .
At the time, Major called for inheritance laws to provide “specific exemptions for property passing from a sovereign to his successor” to protect the fiscal independence of the monarchy.
Major said specific exemptions were needed to preserve the character of the monarchy.
“The danger that the assets of the monarchy will be amputated by the taxation of capital over generations, thereby changing the nature of the institution in ways that few in this country would accept,” Major said.
Charles will still have to pay
While avoiding tax on a $750 million estate is good news for King Charles III, the new monarch had to give up a few expensive assets during his rise to regent status.
In taking the title of Duke of Lancaster, Charles had to cede his old title of Duke of Cornwall to his eldest son, Prince William, and the Duchy of Cornwall – also intended as an additional source of income for its owners – is completely lost. makes the valuable domain itself.
Last year, the Duchy was worth just over £1 billion ($1.15 billion) and generated a personal annual income for Charles of £23 million ($26.5 million).
And while the new king may avoid any inheritance tax, he’ll likely continue to pay income tax, a tradition his mother started in the 1990s, a time shrouded in controversy when the monarchy was significantly less popular. than it is today.
In 1992, Queen Elizabeth II agreed to pay a voluntary tax on the earnings she received as Duke of Lancaster. As part of the arrangement, Prince Charles of Wales and the Duke of Cornwall agreed to do the same.
It’s not a trivial tax payment either, with the Duchy’s annual income currently standing at £24 million, or nearly $28 million.
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