POLITICS
15/07/2013 21:26 BST | Updated 15/07/2013 21:29 BST

Prince Of Wales Tax Comes Under MPs Scrutiny

The Prince of Wales's principal private secretary has hit back at MPs' suggestions that the tax arrangements of Charles's Duchy of Cornwall estate make it a "medieval anomaly".

Appearing before the Commons Public Accounts Committee, William Nye defended the rules which mean the Duchy, which provides the heir to the throne with an income, is not liable for corporation tax or capital gains tax.

prince charles

The Duchy estate was established by King Edward III to provide a private income for his son

Charles's income from the Duchy, a portfolio of land, property and investments, rose 4% to a record £19 million during 2012/13.

Labour MP Austin Mitchell told the royal aide: "For tax purposes it's not a corporation but for every other purpose it is a corporation. Wouldn't it be better if it was taxed as a corporation rather than some medieval anomaly?"

Mr Nye replied: "It's true that it is medieval in that it was founded in 1337, but I think it has moved into the 21st century - it's not a corporation.

"The Duke of Cornwall owns an estate, it's a large estate, it's got a lot of property in it, but he hasn't set it up as a company.

"He hasn't set it up as a corporation or, to be more accurate, Parliament hasn't set it up as a company or a corporation - it's a private estate and it's run as a private estate."

Mr Nye was also grilled by PAC chairwoman Margaret Hodge, who said: "We want to reflect on the current arrangements to see whether or not they reflect the reality of the world today."

She asked what tax would be paid if the JV Energen joint enterprise, which involves the Duchy in a partnership running an anaerobic digester, turned a profit.

The royal aide said: "The Duchy of Cornwall does not pay capital gains tax because the memorandum of understanding on royal taxation establishes that capital gains tax is not payable.

"The Duke of Cornwall does not pay capital gains tax because he doesn't have access to the capital gains. The capital gains are all reinvested in the Duchy for future dukes."

The Duchy estate was established by Edward III to provide a private income for his son and heir to the throne Edward, later known as the Black Prince, and its purpose has remained the same.

Charles, who is also the Duke of Cornwall, voluntarily pays tax on his income from the Duchy - his bill during the last financial year was £4.4m.

Mr Nye added that the issue of corporation tax on any profits "does not arise" and he stated: "The Duchy of Cornwall is not subject to corporation tax."

Senior Treasury official Paula Diggle was asked about the principal of exempting the Duchy from paying tax, she replied: "Simply that the monarch and prince cannot be in business in their own right, cannot build up income during their lifetime for their support.

"So that they need state support in order to carry on their business of leading the country and in doing so it would be crazy to tax them on their other income - that's the principle."

Keith Willis, the Duchy's finance director, told the MPs: "There are many property companies that pay very little corporation tax."

He added: "They do not avoid it, it is distributed to shareholders who pay income tax. It's tax transparent, the burden comes off the little corporation tax on to income tax for the recipient."

But Mrs Hodge said with corporation tax levels lower than those for income tax "I don't believe property companies would arrange their affairs in such a way".