Royal Wedding Tax Implications | Meghan Markle | Rea CPA

Complex Tax Issues From The Royal Wedding

Meghan Markle | Royal Wedding & Taxes | Ohio CPA Firm
Millions of people from around the world tuned in to watch the real-life fairytale unfold as Prince Harry and Markle, now the Duke and Duchess of Sussex, were married at St. George’s Chapel at Windsor Castle on May 19. And as the happy newlyweds prepare to start their new lives together, the royal couple can be sure that they have the attention of the IRS – among many, many others.
PHOTO FROM CNN.COM

Being a member of the British royal family certainly comes with its share of perks, but for American actress and newly named Duchess Meghan Markle, navigating the complex tax laws associated with her recent marriage to Prince Harry presents several U.S. tax issues.

Millions of people from around the world tuned in to watch the real-life fairy tale unfold as Prince Harry and Markle, now the Duke and Duchess of Sussex, were married at St. George’s Chapel at Windsor Castle on May 19. And as the happy newlyweds prepare to start their new lives together, the royal couple can be sure that they have the attention of the IRS – among many, many others.

Read Also: The ‘To-Do’s’ After The ‘I Do’s’

Continued Responsibility Of An American Citizen

It’s not uncommon for a U.S. citizen to move abroad. In fact, the State Department estimates that around 9 million Americans currently live outside the U.S. Be that as it may, U.S. citizens, regardless of where they call home, are still subject to U.S. income tax and IRS scrutiny.

So what’s a duchess to do?

Well, she has a few options. For example, what happens if the Duchess receives an allowance from Prince Charles? What will her filing status be? Will she be advised to file “married filing separate” to forgo the any complications in potential tax controversy with the IRS pertaining to the Duke and his assets? Are foreign banks going to comply with the Foreign Account Tax Compliance Act (FATCA) and disclose the Duchess’ assets to the U.S. government? And what about compliance issues related to Form 8938 with regard to certain foreign financial assets she may now come to own? Naturally, this particular coupling is accompanied by more than few questions.

Even if the couple tries to keep their assets separate, disclosing assets may be a particular worry. For example, unless Markle renounces her American citizenship, she will be required to file U.S. tax returns, plus FBARs (foreign bank and financial accounts), every year, which would require her to report her worldwide income and disclose her assets.

Fortunately, we’re sure, the Duke and Duchess will be well advised. At the very least, if the Duchess maintains her American citizenship and continues to file U.S. tax returns, we are confident that she will file her taxes separately to ensure that Prince Harry is not caught up in the U.S. tax net. But what if they have children? Given this particular the scenario, what would their tax situation look like?

Instead, let’s examine the possibility of the Duchess renouncing her American citizenship. Well, for starters, Form 8854 would need to be filed with the Department of Treasury, which would notify the U.S. government of her intent to forgo any future obligations. But that’s not all. As you can imagine, forgoing one’s citizenship can get costly, especially for high-net worth individuals.

In order to cut ties with the States, high-net worth individuals (those with a net worth greater than $2 million or an average annual net income tax for the five previous years of $162,000 or more) will have to pay an “exit tax.” This particular tax is calculated as if all assets belonging to an individual were sold at fair market value on the day prior to any relinquishments and any capital gains are reported and taxed as high as 23.8 percent. Additionally, to formally hand in one’s American passport, a fee of $2,350 is charged. Moreover, to effectively relinquish citizenship, one generally must be able to prove at least five years of IRS tax compliance – which can, in itself, be costly.

Noble Lessons For The Rest Of Us

It’s easy to get lost in the grandeur of a royal wedding or the allure of living the fairy tale, but the Duke and Duchess’s tax concerns have some pretty practical takeaways for the rest of us. First and foremost, a major decision, such as living abroad or relinquishing American citizenship can have some pretty serious financial consequences. The royals don’t embark on such a journey alone, and neither should you. If you are considering leaving the country, regardless of how long you plan to be gone, make sure your advisors – particularly your tax and legal advisors – are in the know.

Email Rea & Associates to learn about the various options available to those considering living abroad and let our team of expert tax advisors help you make the most financially sound decision while working in conjunction with the rest of your advisory team.

By Luke Lucas, CPA (Cleveland office)

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