Palace halts fight over princes' £7m tax bill
by Peter Gruner
Fearing accusations of "special treatment" the Royal Family will not be pursuing a 1987 legal precedent which would save the Princes 40 per cent inheritance tax
A scheme that would have saved Prince William and Prince Harry £7 million in inheritance tax on the estate of their mother Diana, Princess of Wales, has been abandoned for fear of accusations of "special treatment".
The legal scheme has been rejected by the Royal Family and the princes' uncle, Earl Spencer.
Now a team of advisers, led by former Prime Minister John Major, will devise a more acceptable system of resolving the Princess's complex financial affairs. He has the support of the Queen and Tony Blair.
Mr Major and lawyers from Boodle Hatfield, a London firm of solicitors, had been examining a 1987 legal precedent whereby the Princess's £17 million divorce settlement could have been returned to Prince Charles then placed in trust for his sons over seven years.
The process would have spared the young princes 40 per cent inheritance tax. It is called a "Barder application" after the 1987 Varder versus Barder case, and is entirely legal. Mr Blair had been apparently prepared to defend its use in this case.
However, fearing accusations of "special treatment," the Prince of Wales and the Spencer family have agreed that this course of action should not be pursued.
"There will be no Barder application," said a St James's Palace spokesman.
"Obviously, everyone is concerned to maximise possible benefits to the boys but the Queen has always made it clear that she wants the family's tax affairs to be dealt with in a straight-forward way."
The decision, according to reports today, would appear to be an example, albeit a very expensive one, of the Royal Family pre-empting hostile public reaction. The appointment of Mr Major as a short-term "Accountant Regent" was seen as the best way of circumventing possible conflicts of interest.
Mr Major was chosen because of his stature as a former prime minister and his mediating role during the royal separation and divorce. He is not being paid for his services.
It has been confirmed that the Princess did not alter her will after her divorce. When it was drawn up, her personal wealth was £1 million. When she died, it is believed this sum was in the region of £21 million - £17 million from the settlement, £3 million in interest and the £1 million she received from her late father.
A major concern is the way in which the Inland Revenue might value the intellectual property of the Princess's estate, something she never contemplated when making her will.
In theory, the rights to "market" the Princess's name and image could be worth millions. If the Revenue takes this view, the princes might be subject to a tax bill greater than the value of the divorce settlement. One solution might be to transfer intellectual property rights to a charity.
© Associated Newspapers Ltd., 24 November 1997