Meghan Markle’s U.S. Citizenship Could Cause Tax Headaches For British Royal Family

Washington Post, Meghan Markle’s U.S. Citizenship Could Cause Tax Headaches For British Royal Family:

It may seem like a modern fairy tale, but the upcoming wedding of Britain's Prince Harry to American actress Meghan Markle will come with some mundane hurdles. Perhaps most inconveniently for the British royals, this transatlantic partnership could end up involving the United States' Internal Revenue Service.

Buckingham Palace announced Tuesday that Markle will become a British citizen after her wedding next year. Though some foreign politicians are required to give up their dual citizenship, there are no similar rules for British royals — and there has already been widespread speculation that the union of Harry and Markle could eventually result in some British royal children wielding American passports.

But there's a big obstacle in the way: American tax laws. "U.S. citizens are subject to U.S. tax obligations regardless of their country of residence," wrote Peter Spiro, a Temple University law professor and the author of At Home in Two Countries: The Past and Future of Dual Citizenship in an email to The Washington Post. "A member of the royal family would be treated just like anyone else."

By contrast, if Harry were to move to the United States to live with Markle, he would not be expected to file taxes in Britain. America's citizenship-based taxation system is unusual: Only Eritrea has a similar system. It's a relic of the Civil War and the Revenue Act of 1862, which called for the taxing of U.S. citizens abroad — in part to punish men who fled the country to avoid joining the military.

For Harry, the issue isn't that he will suddenly end up paying U.S. income tax, but rather that Markle's American citizenship could open up the secretive finances of the royal family to outside scrutiny. If she remains a U.S. citizen, Markle will have to file her taxes to the IRS every year. And if she has more than $150,000 in assets at any point during the tax year — a likely scenario given her successful acting career and the family wealth of her husband — she will be expected to annually file a document called Form 8938 that will reveal the detail of these assets, which could include foreign trusts.

(Hat Tip:  Georgia Chadwick.)