10 November 2017
The Grosvenor Estate: its ownership by trusts and the payment of tax
A note from Mark Preston, Executive Trustee of the Grosvenor Estate
Since the death of Gerald, the 6th Duke of Westminster in August 2016, there have been articles in the press speculating as to the size of the estate inherited by his son, Hugh, now 7th Duke, attempting to describe the estate's ownership structure and commenting on the extent to which inheritance tax was paid following the death of the 6th Duke.
Almost invariably these articles have been inaccurate on one, two or often all three of these subjects and in the case of inheritance tax liabilities, misleadingly so. More recently, additional speculation has sought to focus on Grosvenor’s use of offshore trusts, investment vehicles and other investments.
This note is posted on our website in order to set out the facts for those who are interested.
The size of the Grosvenor Estate:
In the case of the size of the estate, estimates are bound to be speculative given that we do not make public those parts of it which are private from the perspective of the Grosvenor family. However, we have for many years transparently published through Annual Reviews and Financial Statements details of the largest part of the estate, namely the property group, Grosvenor Group Limited. Its net assets were £4.8bn as at 31 December 2016.
The Estate’s ownership structure:
The business assets of the Grosvenor Estate are owned by a series of UK resident (i.e. onshore) trusts, the beneficiaries of which are both current members of the Grosvenor family and future, as yet unborn, descendants. These assets consist of Grosvenor Group Limited, which manages, invests in and develops property in over 60 cities around the world; Wheatsheaf Group, which directly operates, invests in and helps to develop businesses in the food and agriculture sectors; and the Family Investment Office, which manages the rural estates, other investments and the philanthropic activities, including the Westminster Foundation.
The reason that the Grosvenor Estate, like many other family owned enterprises, holds assets via trusts is to ensure continuity of the collective ownership, administration and management of the estate across the generations.
This enables a far-sighted approach to be taken, ensuring a lasting commercial and social benefit is delivered from our activities. We are not driven by short-term considerations and this affords us a perspective that we believe to be in the interests of the Grosvenor family, employees and the communities in which we operate.
The UK resident trusts are liable to pay income tax, capital gains tax and inheritance tax. Instead of a payment of 40% inheritance tax upon death, the majority of the trusts are of a type that pay a rate of 6% every 10 years. This means that over a full lifetime, the trusts will pay this tax many times over, with the added advantage to the UK taxpayer of its regular, effectively in-advance payment schedule. The remaining trusts will be subject to 40% IHT on the death of the specific beneficiary.
As Grosvenor family members are all UK resident - and have been so for nearly 1,000 years - they pay UK taxes in the same way as the rest of us and are also entitled to the same exemptions.
Accordingly, and as one would expect, the assets left by the 6th Duke to his widow are exempt from inheritance tax. On her death, inheritance tax will be due in the usual manner.
In addition to the main UK-based trusts there are two small non-UK resident trusts which were established over 50 years ago to acquire some non-UK assets. These trusts hold less than 1% of the value of the Grosvenor Estate assets but are not connected to the business activities of the estate and do not own any UK assets. No family member has received any benefit derived from these but, as UK residents, if they ever did then the value of the benefit received would be subject to tax in the UK. These trusts are also subject to the 10-yearly inheritance tax charge.
Grosvenor Group and Wheatsheaf Group:
Within the property business (Grosvenor Group), property income and gains are taxed in accordance with the rules of the country where the property is located. Grosvenor Group occasionally invests in ventures with other investors which are established in jurisdictions which do not create an additional layer of tax, in order to prevent the investors being subject to double taxation. Otherwise, we are careful to ensure that our ownership of overseas property is through vehicles incorporated in the same country as the asset, consistent with our tax policy.
The same approach is taken by Wheatsheaf Group Limited, the business within the Grosvenor Estate which invests in businesses in the food and agriculture sectors.
The Family Investment Office is professionally managed to oversee a number of investments on behalf of the Grosvenor Estate. Some of these are funds managed by third parties which are commonly incorporated offshore, again largely to prevent the issue of double taxation. All investment returns are however reported by the Family Investment Office and taxed as appropriate and in accordance with existing UK tax rules.
Executive Trustee Grosvenor Estate