How the new Duke could avoid a £3billion tax bill
Family trust to save the Westminsters a fortune in death duties
THE Duke of Westminster’s family is likely to avoid paying billions of pounds in inheritance tax thanks to the use of trusts.
With a fortune said to be worth £9billion, the Duke, who died on Tuesday at 64, was Britain’s third richest man.
Usually, when someone who is married dies, their estate passes tax-free to their spouse.
Inheritance tax is only charged when the surviving spouse dies, and is normally levied at 40 per cent of the estate’s value above a threshold of £325,000.
The Duke’s 57-year-old wife, Natalia – known as Tally – survived him, along with their children Lady Tamara, 36, Lady Edwina, 34, his heir Hugh, 25, and Lady Viola, 23.
But experts said yesterday that even on his widow’s death, the Duke’s children were unlikely to be burdened with inheritance tax.
Vast amounts of the family fortune are owned through trust structures, which operate from one generation to the next regardless of family deaths and without the usual inheritance tax liability.
This means the duke’s estate is likely to pay only a fraction of the amount it would otherwise have owed the taxman – estimated at more than £3billion.
However, a charge of 6 per cent of the value of a trust’s assets may be levied every ten years on any assets that were transferred on or after March 22, 2006.
The trustees controlling the family’s property and business empire will now be headed by the Duke’s only son, Hugh, 25, who inherits the title and becomes the 7th Duke of Westminster.
Peter Legg, head of specialist independent inheritance tax consultancy IHT Planning Matters, said: ‘Often, trusts were established for these big families years and years ago.
‘It avoids destruction of the estate when someone dies.
‘The Duke and other family members are likely to be part of a “beneficiary class”. That means they could receive income from the assets. But they do not have entitlements to either the income or the assets themselves.’
In a famous case often cited in tax litigation, the 2nd Duke of Westminster won a legal battle in 1936 against the taxman when a judge ruled it was ‘every man’s right to order his affairs to reduce his tax bill by whatever means he found available’. In another case, the 4th Duke’s entire estate was ruled exempt from inheritance tax by a court in 1979 because after it ruled that his death from cancer in 1967 had been hastened as the result of a wound he suffered during the Second World War.
John Christensen, executive director of the Tax Justice Network pressure group, said: ‘Inheritance tax is largely an option to many very wealthy people – they can choose to pay it or set up elaborate structures to avoid it.
‘That can cause confusion and annoyance to the general public who don’t have the same option.
‘Confusion, because they don’t understand why politicians allow this situation to persist.
‘Annoyance, because it allows one category of citizen to take advantage of a situation which most of us can’t take advantage of.’
Meanwhile, it was confirmed yesterday that the Duke died from a heart attack.
Preston coroner’s office said an inquest into the death of Gerald Cavendish Grosvenor would not now take place because he died of natural causes.
A spokesman for the coroner’s office confirmed the cause of death was ‘myocardial infarction’.
The Duke, who was a close friend of the Royal Family, died on Tuesday afternoon at the Royal Preston Hospital with his wife by his side.
Friends said he fell ill suddenly at 2pm on Tuesday while walking in the nearby Trough of Bowland, an area of outstanding natural beauty, and was airlifted to the hospital by helicopter from his Abbeystead Estate in Lancashire.
The aristocrat had only just arrived at 19th-century Abbeystead House to host a large family party today to mark the start of the grouse shooting season – known as The Glorious Twelfth.
The event is an annual tradition for the Grosvenors, with the first grouse to be shot being flown by helicopter, along with a bottle of Beaujolais from his French estate, to the Grosvenor Hotel in London in time for the chef to cook it for breakfast.
A tribute on his estate website said of the Duke: ‘He was a passionate country man, committed soldier, an excellent shot, a true entrepreneur and, importantly, he went out of his way to be courteous and humorous with all people, regardless of status or wealth.
‘Distinctly down-to-earth, the Duke of Westminster was rarely seen without a Diet Coke and a cigarette (later electric).
‘Not much of a sleeper, one might expect emails from him at any hour of the night and an average week would see him up and down from home in Chester to London and all over the world to visit soldiers, businesses, charities and rural estates while representing and promoting numerous organisations.’
‘It’s an option to wealthy people’