600 years after acquiring Cheshire, Sir Thomas Grosvenor married the 12-year-old Mary Davis, whose dowry included 500 acres of swampy bog west of the City of London.
In 1720, the family realised that London was suffering from overcrowding and the plague, so they drained the swamp and leased out the land to wealthy, aristocratic residents.
They then built mansions for the super-rich in Mayfair and by the early 1800s, started developing the southern area of the family land creating Belgravia.
When the third Duke of Westminster died in 1953, the estimated value of his estate was between £40 million and £60 million.
This attracted an inheritance tax liability of £11 million which at the time was the largest death duty liability ever paid to HMRC.
Thereafter, the Grosvenor family focused their considerable resources on minimising the tax liability each time the estate was passed on to successive generations.
As a result, the 5th Duke of Westminster decided to embark on a 12-year legal battle to prove that his grandfather’s brother, the 4th Duke died as a result of an exploding shell while commanding a unit in 1944 during WW2.
Despite the Duke dying 23 years later of cancer, his legal team were able to establish a questionable link between the war injury and cancer which led to his death. The Grosvenor fortune was therefore exempt from inheritance tax due to the Duke dying in ‘the service of his country’.
With rapidly escalating property prices, the estate which was worth tens of millions was set be worth hundreds of millions and by 1979, when the fifth Duke died, the Grosvenor fortune was now worth an estimated £800 million.
However, before his death, the bulk of the estate was transferred into discretionary trusts. Today, this would be treated as a Chargeable Lifetime Transfer and attract an immediate inheritance tax liability of 20% or £200 million but as the transfer was pre-March 1986, it was not subject to the lifetime tax charge.
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The UK has some of the most generous tax legislation in the world and has enabled the aristocracy to keep their large fortunes intact and safe from repeated charges to inheritance tax.^
A trust constitutes a separate legal entity that has immortality and never forms part of an individual’s estate.
By choosing a series of discretionary trusts, the trustees have a whole list of family members who form potential beneficiaries which the trustees can choose to appoint benefits to.
This clever wording means HMRC cannot point a finger to any potential beneficiary like the young Duke and say that the £9.9 billion belongs to him or his late father.
The billions appreciate in the trust and cascade down to successive generations protected from inheritance tax.
The trust assets are managed by independent trustees who have a legal interest but not a beneficial interest in the trust assets.
This allows the trustees to manage the trust assets within the trust in accordance with the powers awarded under statutes and the trust instruments.