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Is the Queen’s Sovereign Grant about to be cut?

Luke Graham, special to CNBC

A row over the Queen's funding has erupted, following media reports that Scotland was going to keep its profits from the Royal property portfolio.

The state-owned Crown Estate – one of the largest property owners in the U.K. a big contributor to the Royal Family's finances – is a commercial business run by an independent board. All of its profits are paid to the U.K. Treasury, which then allocates 15 percent of the money to the Royal Family. Last year, the "Sovereign Grant" was worth £37.9 million ($60 million).

Confusion over Scotland's contribution emerged on Tuesday, however, when an official from the Royal household told journalists that a plan to transfer some of the Crown Estate's assets to the Scottish government would lead to a shortfall in funding.

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Last month, following a general election, U.K. Prime Minister David Cameron pledged to give more powers to Scotland. As part of the devolution settlement currently under discussion, the Scottish parliament will take control of property from the Crown Estate worth £261.5 million, which generates gross revenue of £14.6 million a year.

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British media reported, however, that the new Scottish government planned to keep its revenues from the estate, meaning the Sovereign Grant could face a shortfall of around £2.2 million each year.

The Scottish Government denied that its contribution would change.

"Scotland will continue to make the same financial contribution to the monarchy as at present – there will be no reduction in the Sovereign Grant as a result of devolution of the Crown Estate," a spokesperson told CNBC.

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The U.K. Treasury also denied that the grant would be cut, saying that Scottish taxpayers would "continue to fund a full and fair share of the Sovereign Grant."

"The Grant will not be adversely affected by devolution – under the Sovereign Grant Act it cannot be reduced and the statutory review of the Grant will ensure that it continues to provide the resources needed to support the Queen's official duties," a Treasury spokesperson told CNBC.

They explained that, while Scotland would gain over £14 million from Crown Estate assets, its block grant from the U.K. would be cut to reflect this – and these savings would then go towards the monarchy.

It comes as the Crown Estate published its annual figures which declared a 6.7-percent rise in profit to £285 million for 2014-15.

Buckingham Palace, home of the royals, declined to comment when contacted by CNBC.

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