Queen's tax breaks revealed

A HIDDEN tax break that saves the Queen more than £500,000 a year has been revealed. The advantage comes from an arrangement between the Monarch and the State regarding the Civil List.

The taxpayer-funded Civil List now benefits only two members of the Royal Family, the Queen and Prince Philip. The £643,000 annual allowance to the Queen Mother ceased on her death at the end of March.

Other members of the Royal Family stopped benefiting from the Civil List when the Queen agreed to pay tax in 1993. However, rather than abolishing the payments, taxpayer handouts to royals continued and the Queen paid an equivalent sum back to the Treasury.

This was said at the time to be a technical arrangement to cover administrative and legal difficulties of stopping the payments. But the Queen, it has now become clear, can set off the money she pays back to the Treasury against her own tax bill.

In this way, the Queen can save income tax at the rate of 40p in the pound on payments of £249,000 to the Duke of York; £141,000 to the Earl of Wessex; £228,000 to the Princess Royal; £636,000 together to the Duke and Duchess of Gloucester, the Duke and Duchess of Kent, and Princess Alexandra.

Another £87,000 is paid by the state to 100-year-old Princess Alice, sisterinlaw of the Queen Mother, and then reimbursed to the Treasury by the Queen. The Queen is therefore likely to be saving £536,000 a year in income tax.

The savings may go up if, as seems likely, payments to the Earl of Wessex rise in the near future to compensate Edward and his wife Sophie for abandoning their careers.

Civil List money was paid in the past to cover staff and administrative expenses for royals carrying out public engagements.

Buckingham Palace said on Thursday that the Queen is now covering the cost of the engagements of royals who no longer take direct subsidies from the Treasury. 'The Queen is paying the Treasury back the amounts that cover official costs,' a Palace spokesman said. 'This is not private money or pocket money. Like anybody who does business, the Queen does not pay tax on legitimate operational expenses.

'This is not a tax avoidance system. It is a simple fact that the Queen has to pay for official costs.'

According to Treasury documents released at the Public Records Office, Civil List payments to the Queen have always been free of tax.

The Queen receives £7.9m a year from the Civil List. Civil List payments to other royals are taxable. But in 1972, when payments to other royals were increased, the Treasury had the power to exempt them from tax, and did so for three unnamed members of the Royal Family. The three individuals paid no tax at all.

Details of the Civil List tax effect look certain to increase the intensity of the political row over royal finances that has been gathering force since the death of the Queen Mother.

Disquiet and loud complaints from Left-wing Labour MPs followed the disclosure of the Queen's exemption from paying inheritance tax on the Queen Mother's estate, a privilege that is likely to save her £20m at a time when ordinary people are finding death duties a major burden.

Inheritance tax bites at 40% on estates worth more than £250,000 - which means that in London and the Home Counties families are paying big bills on modest houses bequeathed by their parents.

The wave of criticism grew after the Daily Mail revealed that the Queen Mother's former home, Clarence House, will undergo extensive renovation at the taxpayers' expense before the Prince of Wales makes it his London home. The Prince has now let it be known that he will pay for a larger share of the modernisation work and estimates of the cost to the public purse have been scaled down from £5m to £3.3m.

The fuss has caused intense scrutiny of the Royal Family's finances and concern over the blurring of lines that veils the ownership of vast amounts of wealth and property. This varies from jewellery collections to the vast landholdings of the Duchy of Lancaster and the Crown Estates.