King Charles III has taken the throne of the United Kingdom, but he will not be subject to inheritance taxes on the enormous fortune that his late mother, Queen Elizabeth II, left him. The reason for this is a contract the royals and the government made about 30 years ago.
Any portion of an estate that is valued higher than a threshold of 325,000 pounds (about $374,000) is subject to the usual inheritance tax rate of 40%, which is payable by regular residents. Common exceptions include gifts made to a spouse or a charity.
However, under a deal with the monarchy revealed by then-Prime Minister John Major in 1993, property transferring from a royal to their successor is exempt from inheritance tax.
The exemption was included in a larger tax agreement.
The arrangement is currently the subject of new scrutiny as Charles assumes the throne and as the U.K. government and its constituents struggle to deal with an energy crisis, skyrocketing food prices, and a problematic healthcare system.
Major foresaw “the danger of the assets of the monarchy being salami-sliced away by capital taxes across generations, so transforming the nature of the institution in a way that few people in this country would embrace” when he issued his warning at the time.
In the 1993 agreement, after contacting the government to inquire about their options for voluntarily paying taxes, both Queen Elizabeth II and Prince Charles agreed to pay a personal income tax.
According to Major, the queen would pay her taxes “just the same way as every other taxpayer.” But he said, “Special inheritance tax provisions are required given the peculiar circumstances of a hereditary monarchy.”
Deliver the duchy
Charles becomes king for many reasons than just Queen Elizabeth II’s passing. It also initiates the transfer of the late queen’s Duchy of Lancaster, which now belongs to Charles, and the Duchy of Cornwall, which moves from Charles to Prince William. Together, these two lucrative holdings bring in millions of dollars annually.
Since the 1300s, the two portfolios have been connected to the current king and his or her successor. They are distinct from the queen’s estimated hundreds of millions of dollars in personal wealth.
In addition to ten castles, large tracts of farmland, and an airport, the Duchy of Lancaster has prestigious real estate in London. It generated a net surplus of roughly $27.6 million for the queen and was recently valued at $750 million. An authority on royal finances told NPR that hundreds of years ago, the crown forcibly took most of the land holdings.