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The new Duke of Westminster will avoid paying billions of pounds in inheritance tax thanks to legal loopholes.

The new party-loving Duke, 25-year-old Hugh Grosvenor became Britain’s third richest man this week when his father Gerald, 64, suddenly passed away.

But the 7th Duke of Westminster, who now owns half of London, will keep his family’s £9bn fortune largely in tact because the majority of the estate is kept in a series of trusts, which are virtually tax exempt.

It puts generations as trustees, or custodians, of the wealth, but they do not ‘own’ it.

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If HMRC had collected the standard 40% death duty, it would have recouped in one go almost as much as it gets in total every year (£4.7bn for 2015-16).

Instead, the only tax the Grosvenors will pay is a charge that comes around every 10 years that amounts to up to 6% of the trust holdings.

Ian Dyall, a manager at financial advisers Towry, said: “The benefits of trusts are that they don’t form part of somebody’s estate.

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“In a discretionary trust, you have a whole pick list of potential beneficiaries which the trustees can choose to appoint benefits to.

“Because of that, you can’t point a finger to any potential beneficiary and say that’s your money.

“Money can stay in the trust and cascade down from generation to generation and nobody pays inheritance tax on it.”

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The late Duke, who had four children, once said: “Given the choice, I would rather not have been born wealthy but I never think of giving it up. I can’t sell. It doesn’t belong to me.”

The estate is divided into three portfolios.

It comprises the Grosvenor property business with £11.8bn in assets; Wheatsheaf, which invests in food, farming, energy and water security; and the Family Investment Office, which manages Downton-style estates across the country.

Each arm comes with its own legal loopholes and tax relief systems.

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John Christensen, executive director of the Tax Justice Network pressure group, said: “The family has been at the forefront of the use of tax avoidance mechanisms, mainly to avoid inheritance tax.

“If you are rich enough, you don’t face the tax bills the rest of us expect to pay. The public does not understand why the rich pay so little but for some reason the politicians refuse to take any action.”

There is no suggestion of any wrongdoing by the Grosvenor Estate, however.

(Image: Geograph/ Neil Kennedy)

Chas Roy-Chowdhury, head of taxation at the Association of Chartered Certified Accountants,

“I’d be very surprised if they hadn’t found a way round the inheritance tax issues.

“Otherwise, as one of the richest families in the country, how would they have kept their wealth?”

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A spokesman for the Grosvenor Estate said the trustees own the assets of the estate for the benefit of current and future members of the Grosvenor family.

He said: “Assets which are held in trust are subject to an Inheritance Tax charge every 10 years on the anniversary of the creation of the trust.

“Assets that were held personally by the Duke, and are now part of his estate, will be subject to an Inheritance Tax charge that arises on death.

“It is not possible at this stage to estimate what this liability is, as all personally owned assets will need to be valued.”

What the Duke of Westminster owns

(Image: Geograph)

The Grosvenor real estate portfolio - now under the control of the new Duke of Westminster - stretches across the UK and beyond.

The family seat, Eaton Hall, in Cheshire, spans 11,500 acres and 526 properties but is dwarfed by the 96,000 acres of the Reay Forest, which is home to the peaks of Ben Stack, Arkle and Foinaven and 3,500 wild deer.

Grosvenor revitalised Liverpool city centre when, in 2008, it opened the Liverpool One shopping complex now valued at £920m, while it also holds the Springside Residential Development in Edinburgh with 250 apartments an another 400 on the way nearby.

(Image: Geograph/ Neil Kennedy)

The 23,500 Abbeystead estate in Lancashire was where the sixth Duke, Gerald Grosvenor, spent his final days but the jewel in the family’s crown is 300 acres of prime central London space spread across in Mayfair and Belgravia.

Outside the UK, it owns the La Garganta estate in the Castilla La Mancha region of Spain, with groves including 19,000 olive trees and 34,000 evergreen oak trees.

And in France, there are 73 retail units and offices on Rue de la République in Lyons, while investments in Sweden include three Stockholm shopping centres.

(Image: Karl and Ali/Geograph)

In China, it has the 126,000 sq m Parkside Plaza and in neighbouring Hong Kong, The Westminster Terrace, a 33-storey residential complex.

Tokyo has Grosvenor Place Kamizono-cho, the Belgravia Azabu and the Westminster Roppongi, and the portfolio spreads out across the US.

In Washington DC it has a residential block on Capitol Riverfront, near the country’s seat of power, and the Campus at Sunrise office block, while in San Francisco there is the shopping complex 185 Post Street, along with Trailside Terrace and 1645 Pacific Avenue.