Meghan Markle and the Royal Baby’s U.S. Tax Dilemma

With the marriage of Meghan Markle and Prince Harry last year, the citizenship of the American actress brought tax implications of dual citizens to light. As Markle took on her role as a British royal, many were curious to see if she would renounce her American citizenship, a choice she ultimately ended up deciding against. Not long after the pair officially tied the knot, they announced they were expecting their first child. Although the family is excited as their suspected due date looms, tax experts believe the couple should start planning their child’s tax strategy sooner rather than later.

Although not all newborns have assets, as a royal, Markle’s baby will likely receive some that will begin earning income immediately. As seen in the complications with Markle’s tax situation, the baby will be obligated to file U.S. taxes on those assets since they are categorized as a dual citizen at birth.  Parents are unable to renounce citizenship for their children, so as long as Markle is an American citizen when any of her kids are born, they will become dual citizens as well.

The Foreign Account Tax Compliance Act of 2010 requires the filing of a Form 8938, which would involve the royals’ financials, and mandates that non-U.S. banks and governments give up necessary financial information about their American account holders. In response to the stringent tax income and reporting laws of the IRS, many dual citizens have renounced their American citizenship. On average over the past two years over 5,000 American renounce their citizenship although many others are unaccounted for officially.

For Markle to do this for herself, she would have to prove five years of IRS tax compliance, pay a $2,350 fee, and most likely pay an exit tax on her estimated $5 million net worth. Fortunately for the royal child, if they give up their citizenship having not lived in the U.S for ten years and before reaching the age of eighteen and a half, they will be able to avoid the hefty exit tax. Having handled Markle’s IRS tax situation, the Sussex Royals will no doubt consult a team of tax experts.

Talley’s experienced team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance and pass on to the next generation the assets and wealth that you’ve worked hard to build. We welcome the opportunity to discuss with you the current opportunities available to you. For more information, contact us today.

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