The royal wedding was recently all over the news, with millions around the world celebrating the marriage of Prince Harry and Meghan Markle. This event was more than just a glimpse into the life of the British elite and royals; it was also a prominent example of the complexities of tax planning, particularly when dealing with international taxes. As an American citizen, Meghan Markle will continue to have to pay taxes on her income even now that she is married to British royalty. This includes both residual income from DVD sales of the show “Suits,” in which she played a main role, and any income she receives as a member of the royal family.
Markle’s Tax Requirements
As with any other U.S. citizen residing abroad, Meghan Markle will continue to have to pay taxes, and as she moves from being a high-net-worth individual to an even higher category, this will likely become complicated and expensive. Since the announcement of the royal engagement, tax experts have been detailing exactly how Markle, and her new spouse, will be impacted by American tax laws, providing interesting insights.
In addition to the annual taxes that most American citizens are familiar with, Markle will have to file additional papers if her assets total over $300,000 at any moment during the year. In this case, she will need to file a form that includes details of foreign assets, such as foreign trusts.
How It Impacts the Royal Family
It is the likely requirement to file forms outlining her foreign assets that will impact the royal family. The royals are not used to having this level of outside scrutiny on their financials, something that they may not greet warmly. While the royal family likely has nothing to hide, they are simply uncomfortable with the idea of financial transparency that comes with having a royal family member declare her assets.
Markle’s Reported Income
It is also important to note that Markle will have to report more than just her income from residual sales of “Suits” DVDs. She will also have to report any income that she earns abroad via the expatriate tax return. The good news for Markle is that there is a foreign earned income exclusion that she may qualify for. If that is the case, she will have her 2018 taxes waived on up to $104,100 of her income earned within the United Kingdom.
There are many potential sources for income for Markle now that she is officially part of the royal family. Since Prince Harry turned 21, he has received an annual $450,000 investment profit from his late mother’s estate (which his brother, Prince William, also receives). He already pays taxes on this in the UK, and it may or may not be included with Markle’s income now that they are married. There is also the annual seven-figure allowance that both Prince Harry and Prince William, plus Kate Middleton, receive from Prince Charles, their father. This allowance covers wardrobe and travel, and it is likely that Markle will receive a similar figure. This will certainly be considered income by the IRS. Her advisors can, however, determine how to classify this income as a way to deliver a lower tax rate.
Markle will continue to pay U.S. taxes unless she decides to renounce her citizenship at some point. Even as a royal, she must live within the UK for five years before being granted permanent residency. Once she has that, she can apply for a second citizenship in the UK and decide whether she will renounce her American citizenship. This decision will likely be undertaken following extensive advice and research from advisors.
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