Royal Taxation (Hansard, 11 February 1993)

§ The Lord Privy Seal (Lord Wakeham)
My Lords, with the leave of the House, I shall now repeat a Statement made in another place by my right honourable friend the Prime Minister on Royal taxation. The Statement is as follows:
"With permission, Madam Speaker, I should like to make a Statement about my further discussions with Her Majesty the Queen about taxation and Civil List payments.
"On 26th November, I told the House that the Queen had asked me to consider the basis on which she might voluntarily pay tax on her personal income and also take responsibility for certain payments under the Civil List arrangements. His Royal Highness the Prince of Wales had made a similar request in respect of his income from the Duchy of Cornwall.
"I am now able to tell the House that the further discussions between the Treasury, the Inland Revenue and the Royal Household have been completed, and that Her Majesty and His Royal Highness have accepted the arrangements proposed.
"The Royal Trustees are today publishing a report setting out the future tax arrangements for both the Queen and the Prince of Wales. The report includes a memorandum of understanding recording the detailed rules which will apply for income tax, capital gains tax and inheritance tax. The agreement takes effect from 6th April 1993.
"It provides for the Queen to pay income tax on all her personal income, whether from investments or from other sources. In addition, tax will be paid on that part of the Privy Purse income which is used for private purposes. There will be no tax payable on income from the Civil List since that is used to meet official expenses and is not a source of personal income for the Queen; the same will apply in respect of other payments and facilities provided by the state for official purposes. The Queen will also pay tax on any realised capital gains on her private investments and on the private proportion of assets in the Privy Purse.
"In the unique circumstances of an hereditary monarchy, special arrangements are needed for inheritance tax. There could, for example, be no question of taxing assets such as the Royal Palaces which the Queen owns as Sovereign and not in a private capacity. The agreement reached with Her Majesty therefore provides that inheritance tax should apply to all bequests or gifts by the Sovereign other than to transfers of assets from one Sovereign to his or her successor.
"As the House will know, the Prince of Wales is already fully liable to tax, except on the income he receives from the Duchy of Cornwall. From 6th April 1993 he will pay income tax on his Duchy of Cornwall income to the extent that it is used for 782 private purposes; this arrangement will replace the voluntary payment of 25 per cent. of Duchy income that he currently makes to the Consolidated Fund.
"The Inland Revenue will administer these arrangements, and the tax received from the Queen and the Prince of Wales will be included in the Inland Revenue's accounts. The Queen and the Prince of Wales will both have the same confidentiality on tax matters as any other taxpayer.
"Although these arrangements are voluntary, both the Queen and the Prince of Wales intend that they should continue indefinitely. Any changes in taxes or tax rates will automatically be applied to these arrangements.
"The report of the Royal Trustees also sets out the new arrangements that are being made for the management of the Royal Collection of paintings and other works of art. The Royal Collection is held by the Queen as Sovereign and passes from one Sovereign to the next. The collection cannot be sold to generate private income or capital for the use of the Queen, and the Queen does not benefit personally from the income generated by the collection.
"So as to make the status of the Royal Collection clear, Her Majesty intends that the maintenance, conservation and presentation to the public of the Royal Collection should in future become the responsibility of a new charitable trust. The trust will fund itself from the income generated from admission charges and other sources. These new arrangements should improve access to the Royal Collection for the whole country.
"The report also confirms that the Government have accepted the Queen's generous offer to refund the cost of a further five of the parliamentary annuities payable to members of the Royal Family under the Civil List legislation, in addition to the three annuities she already refunds. This will apply from 1st April 1993. The result will be that only the annuities paid to Her Majesty Queen Elizabeth the Queen Mother and to His Royal Highness the Duke of Edinburgh will continue as a direct charge on the Consolidated Fund.
"I am confident that the House will welcome these initiatives by the Queen and the Prince of Wales. The new arrangements will ensure that so far as possible the Queen will pay tax on her personal income according to the normal tax rules and will herself take responsibility for the Civil List payments to almost all other members of the Royal Family".
My Lords, that concludes the Statement.

§ Lord Richard
My Lords, we are grateful to the noble Lord the Leader of the House for repeating the Statement made by his right honourable friend the Prime Minister in another place. Although I have very little to say to the House, perhaps I may say at the outset that it seems an eminently sensible way of dealing with what might have proved a potentially embarrassing matter.
783 The structure that has been outlined this afternoon by the Leader of the House clarifies the position, particularly in so far as it emphasises the necessary distinction to be drawn between those money and assets which are personal to Her Majesty and those which are necessary for the proper performance of her duties. I have only one question to ask on that, relating to inheritance tax. Although I totally accept that inheritance tax can clearly not be payable on such assets as the Royal Palaces, which the Queen owns as the Sovereign and not in a private capacity, I am not quite so sure why inheritance tax should not be applicable to other assets which are transferred from one Sovereign to his or her successor. That seems a blanket provision which goes perhaps a little too far.
My only other point of detail relates to the Royal Collection. Again, the way in which it is proposed that this national treasure should be dealt with seems thoroughly sensible. I believe that no fewer than 7,000 paintings and 20,000 Old Master drawings form part of the Royal Collection. Perhaps I may express the hope that they will be a little more visible in the future than perhaps they have been in the past—although I recognise that efforts have been made in recent years to try to enable more people to see them. If they are to be administered by a charitable trust, I hope that they will become—if I dare to use the European phrase—more "transparent" in the future than perhaps they have been in the past.
It is a sensible arrangement and we are grateful to all those who have been involved in bringing it about. We appreciate the fact that the initiative in this matter came from Her Majesty.

§ Baroness Seear
My Lords, we on these Benches would also like to thank the Leader of the House for repeating the Statement. Like the noble Lord, Lord Richard, I have very little to say about it. I start as he finished, by saying that we recognise that the initiative came from Her Majesty the Queen, which makes the whole Statement very much more acceptable to everyone concerned. It is plainly a sensible way of dealing with what could have become a difficult problem as time went on. We are very glad that this arrangement has been arrived at.
Like the noble Lord, Lord Richard, I am particularly glad that the Royal Collection will be in the hands of a charity. Those of us who have from time to time seen some of those pictures realise what a marvellous collection it is. We realise also that, not only in the Queen's collection but elsewhere in the country, too many marvellous works of art are hardly ever visible to the public because they are hidden in cellars, attics or wherever it is that galleries hide their things—but they are not seen by the public. It is very much to be hoped that the change will mean that those quite remarkable pictures will be seen by a great many more people.
In connection with the tax arrangements, I am sure that the changes in the funding of the five other members of the Royal Family from the Civil List to the Queen taking major responsibility will be 784 welcomed. Given all the discussions that are taking place in connection with the monarchy, changes of that kind can only be helpful.
I have only one question and I am sure that there is a straightforward answer to it although it is not immediately apparent to me. Page 3 of the Statement refers to Her Majesty's personal income whether from investments or from other sources". I am not quite sure what is meant by "other sources". Does the phrase mean such things as very large gifts or the yacht? What are "other sources", or is that a convenient term which can be kept to deal with borderline considerations which are perhaps better not discussed? I should be grateful if the noble Lord could comment on that.

§ Lord Wakeham
My Lords, I am most grateful to the noble Lord, Lord Richard, and to the noble Baroness, Lady Seear, for their welcome for this Statement. I am particularly pleased that they stressed that the initiative for the new arrangements came from Her Majesty the Queen herself. I am sure that that was a great help to us all in finding a satisfactory solution to these matters and that this new arrangements will endure for a long time.
Not many questions were raised, but I shall do my best to answer the three that were asked. First, the noble Lord, Lord Richard, asked me about inheritance tax. As the Statement made clear, inheritance tax will apply to all bequests or gifts by the Sovereign, except transfers of assets from one Sovereign to a successor Sovereign. The reason for this—I am sure that, on reflection, the whole House will think that this is right—is that the monarchy is an institution. It needs sufficient private resources to allow it to continue to perform its traditional role in our national life and to have a degree of financial independence. That is why we believe that the passing of assets from one Sovereign to another helps to ensure that that will continue.
As regards the question of the Royal Collection, I am sure that the noble Lord is right in saying that the new arrangements will work much better. The works of art will continue to be held by Her Majesty the Queen as Sovereign, but the trust is being set up to look after the objects in it and to be responsible for their maintenance and display. I have no doubt that part of the objective is to ensure that those marvellous items are better available for other people to view. I am told that one of the first tasks is to prepare a complete inventory of all the items. I was interested to find that this is being done with the aid of computers, but it will still take to 1997—about 2 million man hours of work—to achieve, so it is a formidable task.
In answer to the noble Baroness, Lady Seear, I do not believe that there is anything particularly sinister in the words "other sources". I can well imagine the Inland Revenue thinking that that would be an appropriate phrase to include, whatever the circumstances. There may be other things similar in nature to investments, but not quite investments, that produce income from time to time. I should also stress that the Government believe it is very important that both Her 785 Majesty the Queen and His Royal Highness the Prince of Wales are fully entitled to the same confidentiality in their affairs as any other taxpayer in the country.

§ Lord Charteris of Amisfield
My Lords, as an old servant of the Queen and of the monarchy I listened to the Statement with the greatest interest and respect. There is only one point about it that concerns me. I fear that the Queen may not receive the full credit which I believe is her due for these new arrangements that she has agreed to and indeed initiated. The Statement made on 26th November came in the wake of the fire at Windsor and I believe that many people in this country connect that fire and the other events of the Queen's annus horibilis with these new arrangements for taxation which differ so much from what was arranged when she originally came to the Throne. I should be most grateful therefore if the noble Lord would confirm my understanding that discussions about the new arrangements between the Royal Household and the Treasury began as long ago as last February.

§ Lord Wakeham
My Lords, the noble Lord is absolutely right in asking me to confirm that point. I can certainly confirm that discussions about these matters started to take place long before the fire at Windsor. I am not certain whether February was the date, but it was certainly many months before the fire. The noble Lord is also correct to stress that Her Majesty the Queen initiated those discussions.
As the noble Lord raised the matter of Windsor, although I imagine that most people in your Lordships' House know this, I should also say that the Government have had a clear financial responsibility for the structure, maintenance and restoration of the castle since 1831, so that is nothing new. In the discharge of that responsibility, the Government will obviously pay the cost of restoring Windsor to a proper state.

§ Lord Barnett
My Lords, although I agree with all that has been said about this being a perfectly reasonable arrangement and that the Queen is entitled to the same confidentiality as any other taxpayer, perhaps the noble Lord will accept that these are not quite the normal rules. As he said, it is a voluntary affair for the Queen but for most taxpayers it is not voluntary. However, I am not complaining about that. On the question of deductible expenses, is it intended that the payments to other members of the Royal Family should be an allowable expense for tax purposes set against the Queen's investment income?

§ Lord Wakeham
My Lords, I am grateful to the noble Lord. I seem to remember that in the days when he was Chief Secretary he thought that it was a privilege to be able to pay tax, but over the years he has become a little more balanced in these matters. As I understand the explanatory memorandum, as regards the Civil List payments which will continue to be paid out of the Civil List to those members of the Royal Family who receive them but which will be reimbursed by the Queen, those moneys will be a 786 deduction from the Queen's income. Technically, those moneys would be taxable in the hands of those members of the Royal Family who receive them, but in practice they are fully absorbed in carrying out their royal duties and, as they all carry out royal duties, it is right that they should be allowed to have the expenses of carrying them out deducted from their income.

§ Lord Mishcon
My Lords, there will be great pleasure on all sides of the House at the fact that this controversial matter has ended in such a gracious and dignified way. Having said that, will the House forgive the punctiliousness of a humble lawyer if he deals with the answer that the Leader of the House gave to the question on inheritance tax? The noble Lord said, perfectly justifiably, that when assets pass from one Sovereign to the successor, there should be no inheritance tax. Some of us who deal with these matters know that inheritance tax is payable when gifts are made prior to demise. In order to be precise, in those circumstances will the exemption apply if at the time the gift was made within the period of the demise it was made to the person who was deemed to be the successor, or is it to be the successor who is in fact the successor? I know that this is a punctilious point, but we should have clarity.

§ Lord Wakeham
My Lords, with his acute mind in these matters, the noble Lord has asked a question which I should prefer to study more carefully before answering. However, perhaps I may answer it in this way. On my reading of the Statement and of the background to it, the gifts from Sovereign to successor Sovereign are exempt from inheritance tax. I therefore presume that it would not be to her heir but to the successor Sovereign; in other words, those assets which passed on her death or when she gave up the throne.

§ Lord Diamond
My Lords, I rise only to underline one point. The Leader of House made it clear that the same privacy that attaches to every individual will attach to the matters raised in his announcement. Perhaps I may remind him that, as soon as this Statement becomes public, various press organisations will make every possible calculation and use every possible method to indicate what the income might be and what the tax might be. Great care will therefore be needed, as I am sure is always given, to ensure that there is no unwelcome invasion of privacy.

§ Lord Wakeham
My Lords, I am sure that the noble Lord is right. I sense that every Member of the House agrees with him. These are personal matters. Her Majesty the Queen is of course entitled to the same confidentiality as the rest of us. It is not for me to give any more information on that point. However, I know that I should not be breaching any great confidence if I were to say that many of the estimates are gross exaggerations of the position. They nearly always include assets such as the Crown Jewels and residences used for official as well as private occasions. In that sense, they are not part of Her Majesty's personal wealth.

§ Baroness Nicol
My Lords, will the noble Lord the Leader of the House clarify one small point about the Trustees of the Royal Collection? Is their role purely one of caring for and making arrangements to display the existing collection, or will they have any role to play in adding to or disposing of items in the collection and advising Her Majesty on that kind of management of the collection?

§ Lord Wakeham
My Lords, the trustees' principal role is as I indicated, but I am sure that they are the type of people who will have wider experience which could be of value in the long-term development of the collection.

§ Lord Dormand of Easington
My Lords, does the noble Lord agree that for some time—by that I mean a few years—there will be difficulty in obtaining what one might call the correct assessment of tax? I say that because the arrangement is new, or at least new, I understand, since the time of Queen Victoria. In those circumstances does he also agree that it would be wise to have some kind of supervision or committee—I do not suggest something as strong as a Select Committee —in which there is a public interest? That might include and, in my view should include, Members of this House or another place to see that its whole implementation will be parallel to the arrangements applying to all of us who pay income tax. Whether your Lordships agree or not, there has been a decrease in the monarchy's popularity in recent months. The public interest would be served if close attention were to be paid to what is to happen about the assessment of income tax over the next few years.

§ Lord Wakeham
My Lords, I have to say that I do not agree with the noble Lord.

Noble Lords
Hear, hear!

§ Lord Wakeham
My Lords, the noble Lord has asked a legitimate question. The memorandum of understanding which is the basis upon which the arrangements will be carried out has been agreed to and signed by the chairman of the Board of Inland Revenue. He will obviously have to be satisfied that the arrangements are being carried out properly. To that extent the matter is not dissimilar from the way in which other people's tax affairs are dealt. The Inland Revenue will take part in agreeing to the matter. With regard to other matters—not Her Majesty's income —such as the Royal yacht and so on, which receive government grants, they are subject to National Audit Office investigation. The audit of the Civil List is carried out by the Treasury. That has been done since 1816. I believe that to be a satisfactory arrangement.

§ Lord Stoddart of Swindon
My Lords, perhaps I may make just one further short point on confidentiality, because if Her Majesty's confidentiality is breached so is the confidentiality of all of us breached. Can the noble Lord give an assurance that if that confidentiality is breached the full rigour of the law will be applied to those who breach it, whether they be civil servants, newspapers—high or low—or whoever?

§ Lord Wakeham
My Lords, I have every sympathy with the point made by the noble Lord. However, it is not part of my responsibility to enforce the full rigour of the law. If I had that responsibility I would tend to exercise it in the way that he suggests.

§ The Lord Bishop of Guildford
My Lords, does the noble Lord accept that, although your Lordships have properly looked at a number of details contained in the Statement, in doing so we might have overlooked and underestimated the extent to which Her Majesty has taken this action indicates her graciousness and sensitivity to criticism and anxiety to adapt the monarchy to the current and contemporary situation? That in itself is an indication of her anxiety to serve the nation and to ensure that the monarchy continues to be a vital part of our British constitution.

§ Lord Wakeham
My Lords, I am sure that the whole House is grateful to the right reverend Prelate for the remarks he made, which sentiments I fully share.