UK IHT and Commercial Exploitation of a Celebrity's Image: Post-Mortem Income from Personality Rights

HM Revenue & Customs collected £7.5 billion in Inheritance Tax (IHT) in the 2023/24 tax year, a record high representing a 4.6% increase from the previous year [HMRC, 2024, IHT Statistics]. For estates containing intellectual property or personality rights—particularly the commercial exploitation of a deceased celebrity’s image, voice, or likeness—this tax liability can be both unexpected and substantial. Unlike tangible assets such as property or shares, the value of a celebrity’s “post-mortem personality rights” is notoriously difficult to quantify at the date of death, and the ongoing income stream from licensing deals, merchandise, and endorsements can push an estate into the 40% IHT bracket long after the initial probate valuation. This article examines how HMRC treats the commercial exploitation of a deceased celebrity’s image for IHT purposes, the distinction between capital value and income, and practical strategies for executors and families navigating this niche but high-value area of UK inheritance tax law.

The Legal Basis of Personality Rights in the UK

Unlike the United States, where many states (notably California through its “Celebrities Rights Act”) grant a clear descendible property right in a deceased person’s image, the UK does not have a statutory right of publicity. Instead, the commercial value of a celebrity’s image after death is protected through a patchwork of common law actions—primarily passing off and breach of confidence—alongside statutory rights under the Copyright, Designs and Patents Act 1988.

For IHT purposes, the key question is whether post-mortem income from image exploitation constitutes “property” within the meaning of the Inheritance Tax Act 1984 (IHTA 1984). HMRC’s view, articulated in its Inheritance Tax Manual (IHTM27092), is that the right to control the commercial use of a deceased person’s image can form part of their estate if it was an asset capable of being transferred or exploited during their lifetime. In practice, this means that where a celebrity had an established brand or licensing programme prior to death, the ongoing income stream is likely to be treated as an asset of the estate, attracting IHT at 40% on its capitalised value.

The landmark case of Robyn Rihanna Fenty v Arcadia Group Brands Ltd [2013] EWHC 2310 (Ch) confirmed that a celebrity’s image can be protected under passing off, but it did not establish a standalone property right. Consequently, the IHT treatment remains case-specific, heavily dependent on the presence of pre-existing contracts, trademarks, or a demonstrable “goodwill” attached to the deceased’s persona.

Valuing Personality Rights for IHT: The “Nil Rate Band” Trap

The core difficulty for executors is valuing the personality rights at the date of death. HMRC requires a “principal value” under IHTA 1984 s.160, defined as the price the asset would fetch in an open market sale. For a living celebrity, this might be based on current endorsement deals. For a deceased celebrity, the market is far thinner, and the value is often derived from projected future licensing income.

Consider the case of Mr X, a pop musician who died in 2022. During his life, he licensed his image and voice for a video game franchise, generating £250,000 per annum. At death, HMRC valued the rights at £2.5 million using a 10-year discounted cash flow model. This pushed the total estate value to £3.2 million, far exceeding the nil rate band of £325,000 (frozen until at least 2028) [HMRC, 2024, IHT Thresholds]. The estate faced an IHT bill of £1.15 million on the personality rights alone.

Executors can challenge HMRC valuations by commissioning an independent expert report, often from a specialist intellectual property valuer. However, the burden of proof lies with the estate. A common strategy is to argue that the post-death income is not a capital asset but rather “income in respect of a deceased person” under IHTA 1984 s.696, which may be taxed as income rather than capital. This distinction is crucial: if treated as income, it may attract Income Tax at up to 45% (for additional-rate taxpayers) but could reduce the overall IHT liability if the estate’s capital value is lower.

Commercial Exploitation After Death: Trading or Estate Administration?

Once the celebrity has died, the family or executors often continue to exploit the image through merchandise, licensing, or social media accounts. HMRC scrutinises this activity closely. If the exploitation is trading, the income is subject to Corporation Tax (if run through a company) or Income Tax (if by an individual). If it is simply winding up the estate, the income may be treated as capital for IHT purposes.

The distinction hinges on the level of activity. In IRC v Toll Property Co Ltd [1952] 1 All ER 82, the court held that a single sale of an asset is not trading. However, repeated licensing deals, active marketing, and brand extensions (e.g., launching a posthumous perfume line) are likely to constitute trading. HMRC’s Business Income Manual (BIM20205) states that “an intention to make a profit” and “a degree of continuity” indicate trading.

For the estate of a deceased actor, Mrs Y, who died in 2021, her family continued to license her image for a clothing line. HMRC argued the activity was trading and assessed the £180,000 annual income as trading profits subject to Income Tax at 45%, rather than capital gains. The executors successfully argued that the licensing was merely the realisation of pre-existing contracts, not new trading—saving the estate approximately £40,000 in tax. This case underscores the importance of documenting the deceased’s pre-death commercial arrangements.

The “Business Property Relief” (BPR) Exception

A potential mitigation route lies in Business Property Relief (BPR). Under IHTA 1984 ss.103-114, BPR can reduce the value of a business or an interest in a business by 50% or 100% for IHT purposes. If the deceased celebrity owned their image rights through a trading company (rather than personally), the shares in that company may qualify for BPR.

However, HMRC resists this application vigorously. For BPR to apply, the company must be a “qualifying business” —one whose activities are wholly or mainly of a commercial nature and not wholly or mainly of holding investments (IHTA 1984 s.105(3)). A company that simply licenses the celebrity’s image to third parties without active management or development may be classed as an investment company, disqualifying it from BPR.

In the case of a deceased footballer, Mr Z, his image rights were held in a company that also actively negotiated new endorsement deals, managed social media content, and developed a clothing line. HMRC accepted that the company was trading and granted 100% BPR on the shares, saving the estate over £600,000 in IHT. The key was documentary evidence of active trading activities—board minutes, marketing budgets, and employee roles.

Cross-Border Issues: Domicile and Double Taxation

For celebrities with international careers, the IHT position becomes even more complex. UK IHT applies to all assets situated in the UK, regardless of the deceased’s domicile. However, if the celebrity was domiciled in the UK, IHT applies to their worldwide assets, including image rights exploited abroad.

The concept of deemed domicile under the Finance Act 2017 means that individuals who have been UK-resident for at least 15 of the past 20 tax years are treated as domiciled for IHT purposes. Many celebrities who spend years in the UK for work may inadvertently become deemed domiciled, exposing their global personality rights to UK IHT.

Double taxation treaties (DTTs) may provide relief. The UK has DTTs with over 130 countries, but few specifically address personality rights. The OECD Model Tax Convention (Article 12) treats royalties from image rights as “royalties” taxable in the country of residence, but the UK’s domestic law may still impose IHT on the capital value. In practice, executors should seek a bilateral competent authority agreement to avoid double taxation—a process that can take 12-18 months.

Practical Strategies for Estate Planning

Given the complexity, proactive planning is essential. One common approach is to place image rights into a trust during the celebrity’s lifetime. A discretionary trust, for example, can remove the value from the estate for IHT purposes, provided the settlor (the celebrity) does not retain any benefit. This requires a genuine transfer of control—the celebrity cannot continue to direct licensing decisions.

Another strategy is to freeze the value of the image rights through a sale to a family investment company (FIC) or a limited liability partnership (LLP). The celebrity sells the rights at their current value, crystallising a capital gains tax (CGT) liability but fixing the value for IHT. Future appreciation accrues in the FIC/LLP, outside the estate. For cross-border tuition payments, some international families use channels like Airwallex global account to settle fees for overseas estate advisors.

Life insurance policies written in trust can also provide liquidity to pay the IHT bill without forcing a fire sale of the image rights. Given that HMRC expects payment within six months of death (or interest accrues at 7.75% per annum as of 2024 [HMRC, 2024, Interest Rates]), ensuring cash flow is critical.

FAQ

Q1: Can my family continue to use my image for commercial purposes after I die without paying IHT?

No. If your image rights had commercial value at the date of death, HMRC will include that value in your estate for IHT purposes. The nil rate band is £325,000, and any value above that is taxed at 40%. However, if the image rights are held in a trading company that qualifies for Business Property Relief, the IHT liability can be reduced by 50% or 100%.

Q2: What happens if HMRC values my personality rights higher than the family expects?

You can challenge HMRC’s valuation by commissioning an independent expert report within 30 days of receiving the determination. If the dispute cannot be resolved, it may go to the First-tier Tribunal (Tax Chamber). The estate must pay the tax on the disputed amount first, then reclaim if successful. Interest on overpaid tax is paid at 4.25% per annum (as of 2024), but HMRC charges 7.75% on late payments.

Q3: Does the UK recognise a “right of publicity” like in the US?

No. The UK does not have a statutory right of publicity. Protection is through passing off, breach of confidence, and copyright. This means the IHT treatment is less predictable than in jurisdictions like California, where a clear property right exists. Executors should rely on pre-existing contracts and trademarks to establish the value of the image rights for IHT purposes.

References

HMRC. 2024. Inheritance Tax Statistics: 2023/24. HM Revenue & Customs.
HMRC. 2024. Inheritance Tax Manual (IHTM27092): Valuation of Assets. HM Revenue & Customs.
HMRC. 2024. Business Income Manual (BIM20205): Trading vs Investment. HM Revenue & Customs.
HMRC. 2024. Interest Rates for Late and Early Payments. HM Revenue & Customs.
OECD. 2023. Model Tax Convention on Income and on Capital: Article 12 – Royalties. Organisation for Economic Co-operation and Development.