Royal Wedding Raises U.S. Tax Questions
As American actress Meghan Markle and Britain’s Prince Harry prepare to walk down the aisle this Saturday, most people will not focus on the U.S. tax issues our complex U.S. tax laws inevitably seem to bring. Early in their engagement, Buckingham Palace announced that Markle will become a British citizen after marriage. Yet tax lawyers quickly pointed out that Meghan Markle’s U.S. citizenship could cause tax headaches for Britain’s royal family.
Unless she renounces her American citizenship, she must continue to file U.S. tax returns, plus foreign bank account reports, every year, reporting her worldwide income and disclosing her assets. Even if the newly-weds try to keep their assets separate, disclosing assets may be a particular worry.
Americans living and working abroad must generally report and pay tax where they live. But they must also continue to file taxes in the U.S., where reporting is based on their worldwide income. A foreign tax credit often does not eliminate double taxes. Annual FBARs carry big civil and even criminal penalties if not handled properly. The civil penalties alone can consume the entire balance of an account.
What if Markle decides to renounce her U.S. citizenship? The U.S. charges $2,350 to hand in your passport, a fee that is more than twenty times the average of other high-income countries. One generally must prove 5 years of IRS tax compliance as well. For some, a reason to get into compliance is only to renounce, which itself can be expensive.
Markle reportedly has a net worth of $5 million, which would mean she would likely need to pay an exit tax to the U.S. if she renounces. If you have a net worth greater than $2 million or have an average annual net income tax for the 5 previous years of $162,000 or more, an exit tax most likely applies. It is a capital gain tax, calculated as if you sold your property when you left. A long-term resident giving up a Green Card can be required to pay the exit tax too.
The tax headache raised with the latest royal wedding stands as an example to individuals and families relocating abroad to consult with an experienced tax professional.
Only broadly experienced tax advisory professionals can provide a truly global perspective so you can preserve, enhance and pass on to the next generation the assets and wealth that you’ve worked hard to build. Talley welcomes the opportunity to discuss with you the current opportunities available to you and your family. For more information, contact us today.