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31 August 2016 | Comment | Article by Matthew Evans

How the multibillion pound Grosvenor Estate uses careful tax planning to protect fortune from HMRC


The Duke of Westminster, Gerald Cavendish Grosvenor died suddenly on Tuesday, 9 August at the age of 64, leaving behind an estate worth an estimated £9 billion.

The vast estate has been reported as having been bequeathed to the Duke’s son and heir, Hugh Grosvenor, who, at the age of 25, will now also take his father’s title as the 7th Duke of Westminster.

However, it has been reported that the death of the Duke will not trigger a substantial inheritance tax bill due to the vast estate being held in trust.

According to Forbes[1], at the date of his death the Duke was ranked the 68th wealthiest billionaire in the world and the 3rd wealthiest billionaire in the UK. The Grosvenor estate is divided into three main portfolios, which include real estate, investments in food production and farming and investments on the London Stock Exchange. The estate’s property holdings include many affluent and prestigious areas of London such as Mayfair, Belgravia and Eaton Square.

HM Revenue and Customs reported having collected a total of £4.7 billion in inheritance tax for the 2015 – 2016 financial year. This would mean that if the Grosvenor estate were to be subject to inheritance tax at the standard rate the new Duke of Westminster would be liable to a hefty £3.6 billion pound bill – which is almost as much as the revenue’s entire intake for 2015/16[2].

The careful use of trust structures means that the multibillion pound estate can be passed down to future heirs without attracting death duties for up to a maximum period of 125 years. This is because trusts have the benefit of not forming part of an individual’s estate for inheritance tax purposes.

It is reported that the Grosvenor estate is managed by six trustees who, in their capacities as trustees will have a legal interest but not a beneficial interest in the trust assets[3]. The trustees of the estate have the ability to manage the assets within the trust in accordance with the powers given to them by the trust instruments and by statute. Trustees can, for example, usually trade and sell off the assets in the estate in the same way as someone with a beneficial interest. The primary difference, however, is that trustees do not have the ability to claim the trust assets for themselves as individuals.

The structure of the trusts appears to be complex, with the trusts having established a company (Grosvener Group Limited) to control the estate’s business interests.

Generally, trusts are not exempt from inheritance tax charges. Discretionary trusts, where there is a pool of potential beneficiaries who may benefit from the trust assets which are controlled by the trustees, are charged a 20% tax on the assets which are put into the trust at the outset over the “nil-rate band”. The trust is then also subject to a ‘periodic charge’ every ten years which is calculated as a fraction of the value of the estate. In addition, ‘exit charges’ apply every time assets leave the trust.

There are some exemptions and reliefs from inheritance tax which can reduce the tax payable by the trust. These include business property relief for trading businesses. Whilst the new Duke of Westminster has been reported as being the heir to the estate, it is likely that this is not strictly correct. It is more likely that he is entitled to benefit from the assets held within the trusts. This may mean that he receives an income from the trusts, and/or that the trustees can make payments of capital to him from the trusts and permit him to reside in properties that form part of the trusts.

Trust structures are used by many of Britain’s wealthiest estates as a means of effective tax planning and for protecting assets which are often invested in land. However, trusts are not a tool used only by the extremely wealthy and are often used by individuals for a variety of reasons.

Trusts can be used for example as a means of preserving assets such as property for future generations or for managing assets for individuals who are not able to do so themselves due to age or mental incapacity. Where a testator incorporates a trust into their will, they have the ability to establish the obligations which are to be placed on the trustees and to specify how the trustees are to act in carrying out their obligations to the beneficiaries of the trust.

For more information on how to set up a trust please contact us on 029 2066 0563 or take a look here.

Author bio

Matthew is a partner and heads up the firm’s private wealth offering. He is responsible for the development, implementation and long-term strategy of the team.

Matthew has a UK-wide reputation in the field of contentious probate, recognised by his clients and peers in the leading legal directories.

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