Should the Monarch Pay Inheritance Tax? – UK Constitutional Law Association

The current protests by farmers over adjustments to the principles on inheritance tax have raised questions over who, if anybody, needs to be exempt from paying it – together with exemptions which profit King Charles, as an episode of Newsnight has lately highlighted.

Within the UK inheritance tax is at the moment paid at a price of 40% on the worth of an property over a £325,000 threshold. In odd circumstances, this may have meant that the Treasury was in for a multi-million pound windfall when the late Queen died. However, like numerous monarchs earlier than him, not pay a penny of inheritance tax was paid on the £650 million fortune King Charles inherited from the late Sovereign.

Underneath the long-standing “Crown exemption” rule, the Crown just isn’t certain by statute except that statute explicitly gives on the contrary. The rule has exempted the monarch’s property from the fee of inheritance tax for hundreds of years and, because the laws at the moment in drive, the Inheritance Act 1984, doesn’t explicitly present on the contrary, continues to take action to this present day. Traditionally, this rule additionally exempted the monarch from paying revenue tax and capital beneficial properties tax, and even right this moment the monarch continues to be beneath no authorized responsibility to take action. Nonetheless, following a interval of intense scrutiny of the royal funds in 1993, sparked by anger from taxpayers at being requested to pay for repairs to Windsor Citadel which had been broken by hearth earlier within the yr, the late Queen voluntarily agreed to start paying each revenue tax and capital beneficial properties tax. Nonetheless, beneath the “Memorandum of Understanding on Royal Taxation” (“the Memorandum”), initially signed by the then Prime Minister, John Main, and the Palace, it was agreed that no inheritance tax can be payable on belongings held by the Queen as sovereign, such because the official royal residences. It was additionally agreed that no inheritance tax can be paid on presents or bequests handed “sovereign to sovereign”.

The large query is why?

The Memorandum provides two justifications:

 The explanations for not taxing belongings passing to the following Sovereign are that non-public belongings similar to Sandringham and Balmoral have official in addition to personal use, and that the Monarchy as an establishment wants ample personal sources to allow it to proceed to carry out its conventional function in nationwide life and to have a level of economic independence from the Authorities of the day.

In essence, due to this fact, the inheritance tax exemption was justified on the premise that (i) a number of the monarch’s personal belongings even have an official operate which suggests they should be protected, and (ii) the character of the monarch’s function signifies that it will be significant for them to have “ample personal sources” and “a level of economic independence from the Authorities”. The Memorandum concludes that “the Authorities believes that the preparations set out…are truthful and acceptable, taking account as obligatory of the distinctive circumstances of the monarchy”.

Talking on Newsnight, a Treasury minister said that the Authorities has no plans to make it obligatory for inheritance tax to be paid on the monarch’s property. However ought to it? Do the justifications given within the Memorandum stand as much as scrutiny 30 years on?

The reply, arguably, is ‘no’.

Let’s take the primary justification. Talking in Parliament on the time, John Main defined that inheritance tax shouldn’t be payable on the monarch’s property because it may in any other case result in official royal estates similar to Balmoral and Sandringham being “offered off inside a era or two” – what he known as ‘salami-slicing’. However, opposite to what the Memorandum says, these ‘circumstances’ hardly appear ‘distinctive’ sufficient to justify the exemption: in spite of everything, inheritance tax has nonetheless been imposed on farmers regardless of them voicing the exact same issues in relation to their small household farms. The writer Robert Hardman notes that fears over royal salami-slicing didn’t “elicit a lot sympathy from most of the people” (Robert Hardman, Queen of Our Instances: The Lifetime of Elizabeth II (Macmillan, 2022), 345). Against this, issues that adjustments to inheritance tax will break up generations-old farms do seem to get pleasure from sturdy backing, with almost 60% of individuals supporting the farmers’ protests. This might counsel that the primary justification could not discover favour with the British public.

The second justification appears equally unconvincing. Charles himself is on report as having said that it’s of “absolute significance that the monarch ought to have a level of economic independence from the State.” Professor Vernon Bogdanor agrees, arguing that with out monetary independence, “the Sovereign can be unable to meet his or her constitutional capabilities successfully” (Vernon Bogdanor, The Monarchy and the Structure (OUP, 1996), 195). Nonetheless, there’s a sturdy case to be made that Charles already possessed ‘ample personal sources’ which gave him extra than simply ‘a level of economic independence’ to start with, even with out the inheritance tax reduction: previous to the late Queen’s loss of life, Charles’ private fortune was estimated at someplace between £85 million to £320 million. The considered one man, already in possession of such wealth, inheriting an property price £650 million on which not a penny’s price of inheritance tax was paid, from one of many wealthiest ladies on the earth, is unlikely to strike many individuals as instinctively ‘truthful or acceptable’ to say the least, particularly at a time when tens of millions proceed to face acute financial hardship and price of residing pressures. Certainly, asserting the exemption from inheritance tax within the Home of Commons, John Main defended the choice as being “the overwhelming want of individuals on this nation”. But 30 years on this not seems to be the case: a YouGov ballot carried out on the time of the late Queen’s loss of life confirmed that just about two thirds (63%) of individuals believed that inheritance tax ought to have been paid on the huge property King Charles III inherited, which has subsequently seen his personal private fortune rise to an estimated £1.8 billion. This sentiment is barely prone to have since grown as Charles’ personal sources have elevated. For instance, many extra could now assume it solely truthful and acceptable to ask Charles to contribute in direction of enhancing the very public providers which the current Channel 4 and Sunday Instances investigation discovered are getting used as ‘money cows’ by his Duchy of Lancaster property.

Furthermore, it could even be seen as truthful and acceptable to ask the monarch to top-up the general public purse via the fee of inheritance tax given how a lot the monarchy takes out. For instance, the Sovereign Grant used to fund the monarchy value the British taxpayer £86.3 million for the monetary yr 2023-24. This determine is ready to rise due to a ‘beneficiant’ formulation launched in 2011 to calculate the Sovereign Grant by linking it to earnings made by the Crown Property was, which has resulted in a pointy rise within the quantity of public cash going to the monarchy over the past decade. And eventually, simply this month, it was revealed that King Charles’ Coronation value the taxpayer an extra £72 million.

Due to this fact, there’s a sturdy argument to be made that the monarch doesn’t get pleasure from ‘distinctive circumstances’, that the exemption from loss of life duties is not ‘truthful or acceptable’ and that inheritance tax needs to be paid on the monarch’s property. However because the Authorities has dominated out making it obligatory for him to take action, may King Charles comply with within the footsteps of his late mom and voluntarily pay inheritance tax (or an equal sum to the quantity which might in any other case have been paid from the late Queen’s property) by altering the phrases of the Memorandum?

The reply is ‘sure’. Though the Memorandum states that it’s meant to “proceed indefinitely”, it additionally permits for the potential for “variation or termination of the preparations”. Clause 2.33 reads that “the King…could, at any time, give discover to the Authorities of withdrawal  from these preparations with impact from the next 6 April, or any later date,” thus opening the door for Charles to unilaterally alter the preparations as he needs. The Memorandum notes that, as Prince of Wales, Charles indicated that he would adhere to the preparations agreed by his late mom upon his succession to the Throne; nonetheless, we additionally know that he has “reforming instincts”, and Charles does appear to concentrate on the necessity to change the best way issues have been carried out earlier than as a way to mirror the nationwide temper. For instance, in 2023 the King redirected a surge in earnings from a Crown Property windfall farm for use for the “wider public good” moderately than as additional funding for the monarchy as it will in any other case have been, a transfer which got here only a month after he had highlighted the price of residing disaster confronted by the nation in his Christmas message. In mild of the heightened scrutiny of his tax affairs which appears doubtless following the adjustments to inheritance tax guidelines for farmers, it doesn’t appear out of the query that Charles may certainly select to make ‘variations or terminations’ to the preparations within the Memorandum sooner or later.

On the time the Memorandum was launched, there was additionally a lot educational debate as as to whether the preparations contained therein had created a brand new constitutional conference. The consensus was that it did: Pearce-Crump, for instance, concluded that “all of the proof…appears to level to the truth that a brand new conference has been born” (Donald Pearce-Crump, ‘Royal Taxation’ (1994) British Tax Overview 635, 646). Nonetheless, this may not be an insurmountable impediment to the King various or terminating the preparations within the Memorandum: it’s the nature of constitutional conventions that they don’t seem to be binding and needn’t be adopted unconditionally. Certainly, this flexibility is seen as one of many advantages of conventions since, as a Parliamentary Committee has discovered, they are often put aside “as circumstances change”. That is echoed within the Memorandum itself, which states at Clause 2.34 that “it’s recognised that it is perhaps acceptable to agree variations if circumstances change.” As circumstances which seemingly justified the exemption on the time do seem to have modified 30 years on, it seems that this can be a conference with which Charles may break if he so chooses.

The blanket exemption from paying inheritance tax is a big benefit to which solely the monarch is entitled. Nonetheless, three many years on from when the Memorandum was drawn up, there’s a sturdy case to be made that the monarch doesn’t get pleasure from ‘distinctive circumstances’ which proceed to make it ‘truthful and acceptable’ for him to profit from this constitutional exceptionalism right this moment, particularly in mild of arguments we have now lately heard from farmers within the wake of adjustments to inheritance tax affecting them. It was public protests over the price of refurbishing Windsor Citadel coupled with revelations about Crown exemptions that made the late Queen rethink her tax affairs – 30 years on, it might be the farmers’ protests that makes her son rethink his.

I’m grateful to the editors of the UKCLA Weblog for his or her useful and incisive feedback on an earlier draft. Any errors or omissions are my very own.

Francesca Jackson is a PhD scholar at Lancaster College.

(Prompt quotation: F. Jackson, ‘Ought to the Monarch Pay Inheritance Tax?’, U.Ok. Const. L. Weblog (2nd December 2024) (out there at https://ukconstitutionallaw.org/))

*Editors’ word – the unique put up was amended on 2 December 2024 to make clear the authorized place regarding the fee of inheritance tax from the property of the deceased moderately than by the recipient(s) of bequests