The Duke of Westminster’s death has led to calls from tax campaigners to reform the system of trusts which has allowed Britain’s wealthiest families to preserve fortunes through generations by avoiding death duties.
The 7th Duke of Westminster, 25-year-old Hugh Grosvenor, is now the heir to a legacy worth more than £9bn.
Thanks to a series of trusts, which are thought to date to the death of the 2nd Duke in 1953, Hugh and his three sisters will avoid having to pay the 40% levy ordinary families are faced with when parents die.
“For people who are really wealthy, inheritance tax has become an optional choice,” said John Christensen, director of the Tax Justice Network. “If you are lucky to be born into a very wealthy family you will be untaxed. For most normal people this is extraordinary and unacceptable.
“Wealth that has become concentrated in the hands of a very small minority. Without some kind of wealth tax those concentrations will simply continue to become greater and greater. I think there should be complete reform of inheritance tax.”
Pressure groups are calling on the government to publish its new central register of trusts, which names their beneficiaries and settlors. They want an obligation to publish annual accounts for those collections of assets deemed to have public interest, such as the thousands of acres of urban and rural land owned by the Grosvenor family.
Richard Murphy, the chartered accountant and political economist whose ideas have been adopted by the Labour leader Jeremy Corbyn, said the latest chapter in the history of the Dukes of Westminster highlighted the need for reform.
“We should require that these trusts publish their annual accounts just like a private company,” said Murphy. “And we need a register of trusts. The need for privacy around some trusts is understandable. But where there is public interest, where they are trading, where there are substantial assets over a a certain value, the accounts should be published.”
Despite arguing publicly for greater tax transparency, the former prime minister David Cameron intervened personally to water down proposals by the European Parliament that would have obliged not only private companies but also trusts to make the names of their beneficiaries public.
In a letter sent to the president of the European Council, Herman Van Rompuy, in November 2013 the British prime minister argued trusts should be treated differently.
“It is clearly important we recognise the important differences between companies and trusts,” Cameron wrote. “This means that the solution for addressing the potential misuse of companies, such as central public registries, may well not be appropriate generally.”
Britain’s lobbying was successful. Europe’s fourth money laundering directive, enacted last year, obliges member states to create central registers of trusts. But there is no requirement for the register to be available to the public, and it need only list taxable trusts.
Information on beneficiaries can only be accessed by “competent authorities”, meaning police and tax inspectors, plus bankers, lawyers and accountants making money laundering checks.
George Hodgson, interim chief executive of the Society of Trust and Estate Practitioners, has argued for central registers to remain private because many beneficiaries are children or vulnerable adults. The inheritance tax exemptions help to protect jobs, he added.
“An awful lot of trusts are used to hold family businesses, be they farms or manufacturing businesses. Successive governments have decided that is in the best interests of the economy and therefore the public at large. Family businesses would face significant consequences if they were subject to full inheritance tax. A lot would end up being broken up and sold off.”
