With the birth of Meghan Markle's baby just around the corner, the Duchess of Sussex and the new baby will be liable to pay tax in the US. The US is one of the few countries which charges tax based on citizenship and not residency which means that even if Meghan and Harry live at Frogmore Cottage in Windsor, the US government still expects Meghan to file tax returns with the Internal Revenue Service (IRS).
This also applies to Prince Harry and Meghan's baby as well. Any American who has lived in the US in the last five years automatically passes on their citizenship to their offspring. It is reported that Meghan may apply for UK citizenship but the process is expected to take time. Around the time of her wedding to Prince Harry, Harry's communications secretary Jason Knauf shared that Meghan would be "compliant with immigration requirements at all times."
This means that Meghan will have to reside in the UK for a minimum of five years. When she becomes a UK citizen, Meghan will be able to give up her US citizenship along with her tax liability. However, Meghan and Harry's baby will also be required to wait until he or she turns at least 16, as according to US law, minors under 16 are "presumed not to have the requisite maturity" to give up their citizenship.
Even though Meghan married into Britain's most famous family, she is still currently an American citizen and like every other American, Meghan too must pay her taxes. To legally become a British subject will take a lot of time and until then, Meghan will have to continue to file her taxes in the United States.
This basically means that Meghan will have to declare every single penny of her royal income which will include how much the Duchess of Sussex makes, saves on rent, and also the gifts which she receives from the royal family. David Treitel, who is an agent to the 'United States Internal Revenue Service', told MEA WorldWide (MEAWW): "Meghan has a legal obligation as a US citizen to report worldwide income and gains and file information returns each year. Civil penalties for failure to report can quickly run to astronomic thousands of dollars; whether or not she owes a penny."
However, strict American rules could result in Meghan's husband Prince Harry's money also coming under scrutiny. This is because of the guidance notes for US citizens which state that "you are generally taxed on income available to you, regardless of whether it is in your possession." Prince Harry's £20million trust fund, which has been set up along with money he inherited from Princess Diana and the Queen mother, could also be subject to tax due to the fact that it is "money available" to Meghan.
Given that royals receive income from profits, allowances, wages, among other sources, tax officials will not be able to pinpoint what type of income Meghan is getting and how. "Tax officials will figure nothing. The United States requires US citizens to self-assess and calculate the tax payable each year," David added.
The Duchess of Sussex will also be required to declare her personal items such as her wedding dress and engagement as "All US citizens are required to report gifts from non-Americans valued at over $100,000. The ring alone could not have been less than $100,000 in value," David explained. Meghan Markle's engagement ring is a timeless three stone ring which features a center cushion diamond and accented by two diamonds.
When asked how Meghan's tax would affect Prince Harry, David shared, "Prince Harry is a beneficiary of UK based trusts (most of his income is from trusts). If Meghan is a trust beneficiary, she would report her share. She would also report gifts from Harry, jointly owned bank and financial accounts and financial assets."