The £9bn Estate

by on 15·08·2016

If there was ever an example of how to maximise the tax efficiency of an estate, this is it. Gerald Cavendish Grosvenor, the sixth Duke of Westminster, died suddenly of a heart attack on Tuesday 9th August. He is survived by his wife, Natalia, and his four children. It has been estimated his estate could have an Inheritance Tax liability to the tune of £3.34bn if it were paid at the standard rate of 40% over and above his Nil Rate Band of £325,000. However, it is clear the late Duke of Westminster was prudent and took steps to ensure as much of the family wealth was preserved as possible.

Due to the common law of primogeniture, the right of the firstborn male child to inherit the family estate, Hugh Grosvenor (25) is set to inherit not only the title of 'Duke of Westminster' but also control of his Father's considerable estate circa £9billion.

It is important to note that Hugh, now the seventh Duke of Westminster, does not receive these monies outright. The estate has been cleverly arranged in order to maximise all reliefs available and to structure the assets in a way to preserve the capital value from a large tax liability. Hugh will take control of the assets rather than formerly inheriting them which, as we know, makes all the difference for whether they need to cough up for a hefty IHT bill.

This is due to the majority of the family wealth being held in Discretionary Trusts, whereby no specific beneficiary is named, and therefore no one has absolute interest in order to pick up the IHT bill. In this way, Hugh's sisters, Lady Tamara, Lady Edwina and Lady Viola, as well as wider family, can be provided for.

They also have approximately £11.8bn of assets held under management within a property business, Grosvenor Group. This company owns and manages properties such Eaton Square, and includes around 100 acres of Mayfair and 200 acres of Belgravia - two of the most expensive areas in London. With business activity focused on more than simply generating investment income, the majority of this fortune could qualify for Business Property Relief of up to 100%.

In addition, £9.7bn of assets are held within Wheatsheaf, a company set up in 2012 which employs 450 people to run Grosvenor Farms, one of the largest farms in the UK, and Cogent Breeding, the UK's largest bull stud. As business activity has an emphasis on food production, animal breeding and job creation, this is likely to be largely exempt from IHT due to Agricultural Property Relief.

Although the measures taken to arrange the family wealth are sophisticated, they are of course available to everyone - albeit on a perhaps a more modest scale. Despite this, there seems to be a strong public opinion on this family's privileged position and their apparent lack of "paying their fair share".

It is likely this could bring up an argument of where the line should be drawn between promoting hard work and wealth creation and curbing the perceived "privileges of birth".

The late Duke of Westminster himself commented, when asked what advice he would give young entrepreneurs looking to follow his lead, "Make sure they have an ancestor who was a very close friend of William the Conqueror."

With this in mind, and as it is rare to know the finer details of estates of this size passing down through generations, it could be argued that as the late Duke of Westminster's estate has been so publicly scrutinized it may give way to further consideration on whether our current tax system is fair.

The Nil Rate Band of £325,000 has been at the same level since 6 April 2009 and it is anticipated to remain so until the end of the 2020/21 tax year. Steps have been made to level the playing field in recent years however, especially with the new Additional Property Nil Rate Band being phased in between 2017/18 and 2020/21 giving a total of £175,000 thus exempting joint estates of up to £1million from any Inheritance Tax liability.

There are of course additional allowances available in the form of gifts out of surplus regular income, an annual allowance of £3,000, as well as a small gift allowances of £250 per person and exemptions on gifts for specific events such as weddings.

With so much media attention on the late Gerald Grosvenor's estate, it would not be surprising to see more interest from clients in how to manage their affairs in the most tax efficient way to preserve their wealth for future generations.

We may also see, particularly with our recent change in government, wider discussion around the measures currently available to manage taxation on death and potential for developments in this area of financial planning.