Does the Queen pay Inheritance Tax?

does_the_queen_pay_inheritance_taxLife, Death and Taxes – all inevitable?

Well, for most of us yes, but not if you happen to be the UK Monarch!

The Queen holds a large amount of property in her capacity as Sovereign, for example her Royal Palaces. As she is exempt from selling these or otherwise converting them into private wealth, they are exempt from Inheritance Tax, which you might think is fair enough. It is, after all, property which belongs to us as a nation.

The Queen’s private fortune

What about the Queen’s private wealth which passes to her successor (most likely Prince Charles) on her death then? In any normal situation, an individual leaving more than £325,000 to a child would be subject to Inheritance Tax on the amount over that limit (subject to where an additional allowance has been gained through the death of a spouse).

However, it may surprise you to learn that this is not the case where a Monarch leaves assets to the next in line to the throne. A special deal struck with the government means any assets left by a UK Monarch to their immediate successor will be free from Inheritance Tax, although gifts left to other children or relatives will be taxed in the usual way.

Why should a Monarch receive special treatment for Inheritance Tax?

The rationale behind this is that the Monarch is not able to work or trade and therefore is not able to “grow” their estate in the conventional ways many of us do throughout our lifetimes. If the Monarch’s estate was repeatedly subject to Inheritance Tax as it passed down through the generations, the level of wealth could drop dramatically.

This special arrangement, rather controversially, was also held to apply to the late Queen Mother’s estate who was of course not actually the Sovereign. The arrangement afforded the Queen savings in the region of £20 million pounds of Inheritance Tax. If that tax had been payable in the usual way, it is likely the Queen would have had to sell both the privately owned Balmoral and Sandringham to foot the bill.

Is this fair? That’s one we’ll leave for you to decide!

If you would like further advice on estate planning please contact us.