Princes and Paupers - who should pay inheritance tax?

By Elliot Keck, investigations campaign manager at the TaxPayers' Alliance


The death of Her Majesty The Queen has been refreshingly free of political debate. Outside of the fringes, most have come together in a touching display of affection and respect for a job well done and a life well lived.


But inevitably politics will re-enter the fray. Including on taxation, where a debate has already started. As has been pointed out, King Charles III doesn’t pay inheritance tax on an estate worth an estimated £652 million. Some have already begun calling for policy change to address this. After all, they point out, the rest of us pay 40 per cent on anything over £325,000, or £500,000 if it’s a home.


There are arguments in favour of this arrangement, at least if you believe in the monarchy as an institution. King Charles will not inherit these assets as a private individual, but as the sovereign. He mostly does not have the power to sell these assets, a power reserved to the Crown Estate. Anything passed onto other members of the Royal Family from the Queen’s private estate would be taxable at the normal rate. 


However, it is easy to appreciate why it may seem unfair to people. Why should they pay tax on the comparatively small inheritance from their family, while the King’s wealth remains untouched by the tentacles of the Treasury? Some will say the royal family are unfairly spared the horrible burden of inheritance tax.


The real question though, is why should anyone pay it? Inheritance tax is distortionary, unfair and very unpopular. Exemptions for items such as agricultural property, heritage assets and certain business assets prompt people to take, buy and sell assets to avoid tax. Exemptions for lifetime gifts encourage premature transfer of assets, leading people to transfer assets earlier than they would ideally like. It discourages saving on your heir’s behalf, in favour of immediate consumption or cash transfers. A special higher threshold specifically for residential property encourages people to invest in houses instead of other assets, adding inflationary pressure to house prices while reducing the capital available for other uses, such as business investment.


The scope for avoidance through tax planning means that often inheritance tax is a tax on unlucky people whose benefactors either died unexpectedly early or who felt unable to afford professional advice. Given it is also levied at a difficult time for families on the death of a relative, perhaps the problems are with the tax itself, not the fact the heir to the throne doesn’t pay it in full.


That’s why we have long called for the tax to be abolished. More recently we called on an increase of the threshold to £1 million, as a first step along the road. So to those feeling frustrated that the King hasn’t paid inheritance tax, there’s a simple answer: neither should you.

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