Great Britain has with King Charles III. A new monarch. He now succeeds his recently deceased mother, Queen Elizabeth II, on the throne. He also inherits his wealth. Inheritances are subject to taxation in the UK. In general, a 40 % inheritance tax rate applies. Furthermore, the inheritance tax on the inherited property is incurred there, whereby a one-time allowance of GBP 325,000 related to the property is deductible. But among some other exceptions, one is of particular importance. Because if a monarch takes on an inheritance, it remains tax-free. Therefore, no inheritance tax comes to King Charles III. Even though he inherits a million dollars from his mother.

1st King Charles III. does not pay inheritance tax – introduction

God save the Queen – Long live the King! England has a new king. On 08.09.2022, Queen Elizabeth II died at the age of 96. Until recently, she did her tasks conscientiously. She served many people even beyond the borders of her kingdom as a virtuous example. Their maxim “never complain, never explain” even rubs off on some leaders. But now her son appears as King Charles III. the succession.

Although the continuity of the monarchy may be in the foreground, one can also notice something special here in terms of succession of assets. Because in the UK, as in Germany and elsewhere, you know an inheritance tax. Therefore, as a tax consultancy firm, we are interested in whether the inheritance tax is also applicable to King Charles III. is relevant. After all, this is a fortune that is valued at well and good GBP 350 million. It consists mainly of extensive lands, especially in the county of Lancaster.

2 King Charles III. Inheritance tax in the UK

2.1. Basic features of inheritance tax in Great Britain

So to analyze with what inheritance tax King Charles III. Let us first look at how to tax an inheritance in the UK. At this point, it should be allowed to note that, unlike here in Germany, there is no gift tax, at least no direct one. British inheritance tax law generally stipulates that heirs must pay tax on their inheritances. The tax rate is uniformly 40% of the net assets. But first you have to deduct a tax allowance from the inherited asset. Generally, this nil-rate band called tax-free basic amount is GBP 325,000. Anyone who has read carefully understands that, unlike in Germany, the allowance is by no means due to every heir, but cuts the taxable inheritance once. This would also have to be considered in the inheritance tax of King Charles III.

2.2. Influence of gifts on inheritance tax

However, in determining the basis of assessment, one must also take into account gifts from the decedent to the heirs if they took place in the last seven years before the deceased's death. In this respect, this is an indirect gift tax. If, however, a gift was made within this period, then the taxation of the gift takes place with temporally decreasing effect. Up to three years before the date of death, it remains at the tax rate of 40%. If the gift took place in the fourth year before death, the tax rate is 32 %. For the previous fifth year, it is expected to be 24%. Between the fifth and sixth year, this method, known as taper relief, leads to a melting to 16%. And in the last year of this tax-relevant period, gifts are subject to only 8% of the inheritance tax. In addition, gifts subject to usufruct remain subject to inheritance tax.

2.3 Exceptions to inheritance tax in Great Britain

In addition to these general rules, there are also some exceptions to the potential inheritance tax of King Charles III. It would be relevant. On the one hand, commercial companies, regardless of their legal form, can be inherited tax-free. For this purpose, the decedent must have held the company or the shares in it in his private assets for at least two years. In this case, a 100 % discount is charged on taxable assets; Tax-free is therefore only indirect. For majority shareholdings in listed companies, a discount of at least 50% can be used. Art and cultural objects can also be spared inheritance tax under certain conditions. On the other hand, spouses also do not pay inheritance taxes when they assume their partner’s inheritance.

And when it comes to the home that you inherit to your own children, special taxation rules also apply. Because then the allowance increases to GBP 500,000, provided the property value is a maximum of GBP 2.000.000. Here, too, there is no inheritance tax.

In addition, there is another exception: if a member of state bodies dies in service or as a result of a performance of duty, the property left behind remains exempt from inheritance tax (and possibly gift tax). This previously affected mainly military personnel and police officers, which is why this was also called the blue light exemption. In the meantime, however, this exemption has also been extended to medical personnel who die as a result of a disease with COVID-19.

3rd Special Rules for the Monarch

If we but on the inheritance tax for King Charles III. look, then further exceptions are applied in the British tax legislation. Because in 1993, the then acting Prime Minister John Major enforced that the heirs to the throne as new monarchs do not have to bear inheritance tax. This applies only to inheritances received by the monarch. On the other hand, other members of the royal family, should they accept inheritances, pay quite regular inheritance tax. Queen Elizabeth II. She was able to benefit from this tax privilege when her mother passed away in 2002.

That now the inheritance tax also applies to King Charles III. is related to the following argument with which John Major justified the change in the law. It says that one must avoid that the inheritance tax dismembers the assets of the Royal Family over generations. Otherwise, the institution of monarchy would be subject to constant changes, for which most subjects would probably have no understanding.

But what you also have to consider here is that you basically have to assume two different assets. In addition to the private assets of the monarch, the crown estate also exists. Unlike private assets, the crown estate, called Crown Estate in English, is a separate asset that the state manages. Part of the profits go to the monarch. At present, this is 25%. However, there is no inheritance tax for King Charles III. the asset of the crown, because he by no means inherits it himself. He only assumes the right to this profit share, which the state pays to him annually as a sovereign grant.

4 This is how much inheritance tax King Charles III saves.

Now that we know the reason why no inheritance tax on King Charles III. Let us now consider how much tax he is apparently spared. On the basis of an estimated GBP 350,000,000 in the Queen’s private assets, a 40 percent tax rate can roughly be expected to result in an inheritance tax of GBP 140,000,000. The allowance can be safely left out of an inheritance of this magnitude.

What, on the other hand, should also be quite relevant here are the exceptions associated with cultural goods. As we have already described, certain cultural goods are not subject to inheritance tax under certain conditions. This concerns in particular cultural objects from art and science, for which there is a high national interest in preservation. In addition to the many works of art in the royal estate, this also includes buildings and plots of historical importance. On this basis alone, the otherwise taxable assets should have been significantly lower. Because this general tax exemption is available to all persons taxable in Great Britain. However, other conditions are relevant. Cultural goods are exempt from the general inheritance tax only if they remain open to the public. Whether this is again a condition to King Charles III. It would remain purely speculative. Such speculations are of no use, however, since King Charles III. No need to pay inheritance tax.

No inheritance tax for King Charles III. Criticism and Conclusion

The fact that the monarch in Great Britain is exempt from inheritance tax may delight the supporters of the monarchy; for those who see it as unequal treatment, it is an injustice. After all, in a democracy, one expects everyone to be equal before the state. For this reason, voices have been coming up again and again for a long time, who spoke critically about it. An example of this is a letter published in the Guardian in 2016 on the occasion of the death of the Duke of Westminster. And now that there is no inheritance tax for King Charles, the discussion has once again come to the fore.

Incidentally, this dispute is accompanied by another one. For it is unclear whether King Charles III. the voluntary payment of an income tax and capital gains tax, as his mother had held for some time, may also continue.

In any case, the criticism of the tax exemption on King Charles III concerns. There are also many other wealthy people in Britain. Because via clever tax design, often by transfer to trusts, it is also possible to reduce or even eliminate the inheritance tax there. Criticism of the lack of inheritance tax for King Charles III. is thus also to be understood as a criticism of the tax arrangements for inheritance tax in general.