Nothing is Certain Except Death and Taxes – Unless You’re Heir to the British Throne

The Head of State and Britain’s longest reigning monarch, Queen Elizabeth II passed away 8 September 2022. For weeks following, the nation mourned her death and watched the pageantry of her State funeral and the ascension of her son, King Charles III. Following the pomp and ceremony one cannot help but wonder what then happens to the Estate of the late Sovereign? Does King Charles inherit more than the Crown?

The late Queen’s Will is sealed in accordance with tradition, and so the exact value of her Estate is unclear. However, it is estimated at more than £650 million. In normal circumstances, inheritance tax (IHT) is due on assets valued above a certain amount. The normal rate is charged at 40% on the value of the Estate above a set tax-free threshold. This threshold is currently set at £325,000, and the threshold is currently frozen until 2028. If the value of your Estate is below £325,000 then no IHT is due. However, if your estate is worth more than £325,000, HMRC can potentially take 40% of the surplus.

But the death of the Sovereign is no normal circumstance. In the UK the Sovereign is above the law. No proceedings can be brought against the Sovereign, and thus, neither will the Sovereign’s Estate be subject to Probate. Further, a deal was struck between the Crown and John Major’s government in 1993. This deal exempts the monarch from paying inheritance tax. The deal states that some of the royal assets are held by the monarch as ‘Sovereign rather than as a private individual’. The ‘Memorandum of Understanding on Royal Taxation’ continues that it is therefore, ‘inappropriate for inheritance tax to be paid in respect of such assets’. Crown assets are, thus, exempt from inheritance tax, but what about the monarch’s private property and fortune?

The Memorandum also exempts the monarch’s private property from inheritance tax when the assets are passed down to the monarch’s heir, the next sovereign. Inheritance tax is not payable when private assets are passed sovereign to sovereign. Anything the King inherits from his mother will not be subject to inheritance tax. However, any assets the late Queen may have left in her Will to other members of the royal family will be subject to inheritance tax.

Benjamin Franklin once famously said ‘Nothing is certain except death and taxes’. That is unless you are the Sovereign or Heir to the British Throne.