King Charles III has ascended to the U.K. throne, but he won't have to pay the U.K.'s inheritance tax on the massive wealth he inherits from his late mother, Queen Elizabeth II. That's because of a deal the royals made with the government nearly 30 years ago.
Regular citizens must pay the standard inheritance tax rate of 40% on any part of an estate that's valued above a threshold of 325,000 pounds (about $374,000). There are common exceptions, such as money left to a spouse or a charity.
But under an agreement with the monarchy that then-Prime Minister John Major announced in 1993, assets passing from a sovereign to their successor aren't subject to the inheritance tax.
The exemption was part of a broader tax deal
As Charles becomes king — at a time when the U.K. government and its constituents are struggling to cope with an energy crisis, soaring food prices and a troubled health care system — the arrangement is now under fresh scrutiny.
At the time, Major warned of "the danger of the assets of the monarchy being salami-sliced away by capital taxation through generations, thus changing the nature of the institution in a way that few people in this country would welcome."
In the 1993 deal, both Queen Elizabeth II and Charles agreed to pay a personal income tax, after reaching out to the government to ask how they might voluntarily pay taxes.
The queen would pay her taxes in "precisely the same way as every other taxpayer," Major said. But he also stated, "In the unique circumstances of an hereditary monarchy, special arrangements are needed for inheritance tax."
Pass the duchy
Queen Elizabeth II's death does more than trigger Charles becoming king. It also sets in motion two lucrative holdings that generate millions in income each year: the late queen's Duchy of Lancaster, which now goes to Charles, and the Duchy of Cornwall, which transfers from Charles to Prince William.
The two portfolios have been linked to the reigning sovereign and his or her heir since the 1300s. They stand apart from the queen's personal fortune, which is estimated in the hundreds of millions of dollars.
The Duchy of Lancaster includes prime real estate in London, along with 10 castles, swaths of farmland and an airfield. It was recently valued at $750 million and delivered a net surplus of about $27.6 million for the queen. As an expert on royal finances has noted to NPR, the monarchy forcibly seized most of the land holdings hundreds of years ago.
"In many ways, the queen shouldn't own the Duchy of Lancaster," David McClure, author of The Queen's True Worth, said last winter. "It really should be owned by the state. But because it's gone on for so long and it's embarrassing, no one has done anything about it. You know, it's a cash cow."
The Duchy of Cornwall is also a money-maker. Its most recent audit lists net assets of about $1.2 billion, and $26.4 million in "distributable surplus" for the financial year that ended on March 31, 2022.
Calculating the monarchy's wealth is complicated, due to their extensive holdings and the challenge of discerning the financial affairs of royalty — people whose identity and livelihood are intertwined with their official, state-supported roles.
In addition to the Duchy of Lancaster, for instance, the sovereign also gets millions of dollars through an annual grant from the Crown Estate, a massive property portfolio that includes much of Regent Street in London. As the Crown Estate website notes, it "belongs to the reigning monarch," but it isn't their private property, and they get only a share of the revenue it generates.