Why is King Charles exempt from inheritance tax and would the Queen want him to pay it? (27 October 2022)

Upon the Queen’s sad passing, King Charles has not only inherited the Crown and the responsibilities that follow, he has also inherited the Duchy of Lancaster estate, which has been valued close to £534 million.

This of course is a drop in the ocean considering the staggering size of the entire Crown Estate, estimated to be valued at £15.2 billion. An estate of £534m, however, is still a huge estate, with the average inheritance in the UK to be around £11,000 and the average UK household net worth valued at £302,500.

Currently, non-royals can rely on a nil rate band applicable to all of £325,000, while anything above that becomes taxable at 40%. Various tax exemptions exist that people can rely on to increase their nil rate band or deduct from the tax. However, each year, approximately 24,500 estates are required to pay inheritance tax, forecast to raise a whopping £6.7b in 2022-2023. Inheritance tax is generally a despised tax, often viewed as a stealth tax on assets, which have already been subject to taxation during the lifetime of the deceased.

If the Queen’s estate were taxable, King Charles would potentially be looking at a tax bill of around £213,200m, although the cost of the Queen’s funeral, estimated at £8m, would be deductible, potentially reducing it to £205,200m.

However, King Charles will not receive any tax bill on his sizeable inheritance due to the royal inheritance tax exemption. As per the Sovereign Grant Act 2011, “the Monarch is not legally liable to pay income tax, capital gains tax, or inheritance tax because the relevant enactments do not apply to the Crown”.

According to a YouGov poll, 63% of people believe King Charles should have to pay inheritance tax, which is particularly pertinent in view of the uproar over recent tax cuts announced in the disastrous ‘mini budget’, most of which have been scrapped.

To the public, this appears as simply another case of ‘how the rich stay rich’, but when applying the relevant tax exemptions available to all, it is questionable whether there would be much if any tax to pay on the estate notwithstanding the rule laid down in the Sovereign Grant Act.

In 1993, the Queen began paying income and capital gains tax on the estate of her own accord which leads us to question, would the Queen have wanted inheritance tax to have been paid? King Charles has previously shared his desire to aim for a less-expensive and more streamlined monarchy, however, whether he plans on following through with that, or ultimately follow his mother’s footsteps with regard to tax, is a question that will only be resolved over time.

About the author: Amberlie Camm is senior caseworker in the Wills and Probate department, including will disputes, trust disputes, disputes surrounding the value of assets, and dealing with matters that arise through difficult executors.

Amberlie works under highly regarded director Caroline Roche who is extensively experienced in all aspects of wills and probate including, drafting wills to include a wide range of complicated situations; advising in relation to inheritance tax matters, gathering in the estate of the deceased, dealing issues arising in both taxable and non-taxable estates, and handling the affairs of a loved one who has died without making a will.

For advice on any matter relating to wills and probate contact Amberlie via email at Amberliec@duncanlewis.com or via telephone on 020 7923 8467.