Will King Charles III pay inheritance tax UK? What monarch has inherited from the Queen - how much it is worth

Charles is inheriting the Crown Estate and Duchy of Lancaster from his late mother - her main sources of wealth

The UK has continued to mourn the passing of Queen Elizabeth II, with her body now lying in state in London to allow people to pay their respects.

Queues could stretch to Southwark Park on the south bank of the River Thames as the UK prepares for the late monarch’s state funeral next Monday (19 September).

With the Queen’s death, her son Charles has not only acceded the throne but he has also inherited his mother’s considerable wealth.

But what does this estate include - and will he have to pay UK inheritance tax on it?

King Charles has inherited the Queen’s vast wealth (image: AFP/Getty Images)

What was the Queen’s net worth?

According to the Sunday Times Rich List 2022, the Queen was worth an estimated £370 million this year.

This wealth consists of a share believed to be 25% of the profits from the Crown Estate (roughly £328.5 million), the Duchy of Lancaster (£24 million) and a stock market portfolio.

But, given the profits from the Crown Estate are set to fall next year as a result of the Covid pandemic, Charles might be inheriting a slightly smaller fortune.

What will King Charles III inherit?

King Charles III is going to inherit all of the Queen’s income streams - primarily the Crown Estate and the Duchy of Lancaster.

The Crown Estate has an estimated £15.6 billion in assets.

The Crown Estate owns swathes of central London (image: Getty Images)

As well as consisting of a considerable property portfolio that includes a vast chunk of central London this estate also contains the Royal archives, a collection of priceless paintings and much of the seabed around England, Wales and Northern Ireland.

However, the Queen did not technically own these assets, as they are effectively held by the government which takes the net income they generate.

Instead, she was paid 25% of the profits brought in by these assets through ticket sales, rent and other activities two years in arrears.

This 25% was previously 15%, but the government upped it for a decade in 2017 to allow for the refurbishment of Buckingham Palace.

This money is used to pay for the Queen’s official travel, property maintenance and Royal household operating costs.

It is expected King Charles will inherit this arrangement.

It’s expected King Charles III will continue with the Queen’s arrangements with the government (image: Getty Images)

Also set to be inherited by Charles is the Duchy of Lancaster - a 18,228 hectare, £650 million estate containing multiple properties and farms across parts of England and Wales that’s held by a trust.

This estate is run by a government minister known as the Chancellor of the Duchy of Lancaster.

How much is UK inheritance tax?

You have to pay inheritance tax in the UK if the value of the estate you’re inheriting is worth more than £325,000.

The threshold can rise to £500,000 if you give away your home to your children or grandchildren.

HMRC is unlikely to be chasing up King Charles for inheritance tax (image: Getty Images)

The standard rate of the tax is 40% and is charged on anything that sits above the threshold.

So, for example, if you have an estate worth £400,000, you will pay 40% tax on £75,000.

The tax can be reduced to 36% if 10% of the net value of the estate is donated to charity.

Will King Charles III pay inheritance tax UK?

When it comes to the Crown Estate and Duchy of Lancaster, King Charles III will not pay any inheritance tax.

This is the case because of a clause agreed with the Queen by former Prime Minister John Major in 1993.

It remains unclear whether this arrangement extends to the palaces at Sandringham, Norfolk and Balmoral, Scotland, both of which were owned outright by the Queen.

The Queen owned the Sandringham Estate outright (image: Getty Images)

A 2013 Memorandum of Understanding concerning Royal taxation in 2013 stated that it was “clearly inappropriate” for the monarchy to have to pay inheritance tax because these assets were needed to allow the Queen to “perform [her] role in national life”.

However, this is believed to only apply on a sovereign to sovereign basis, meaning anyone other than the King would have to pay inheritance tax.

The Memorandum said Charles would continue with this arrangement - although this has not been confirmed by the Royal household.

While no inheritance tax is likely to be paid, it is expected the new King will take up the Queen’s arrangement to voluntarily pay income and capital gains taxes.