The US tax dilemma facing Meghan, Harry and the royal baby
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The Duke and Duchess of Sussex
Britain's Prince Harry, Duke of Sussex, (L) and Britain's Meghan, Duchess of Sussex (R) attend a reception to mark the 50th Anniversary of the investiture of The Prince of Wales at Buckingham Palace in London on March 5, 2019. - The Queen hosted a reception to mark the Fiftieth Anniversary of the investiture of Britain's Prince Charles, her son, as the Prince of Wales. Prince Charles was created The Prince of Wales aged 9 on July 26th 1958 and was formally invested with the title by Her Majesty The Queen on July 1st 1969 at Caernarfon Castle.
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As first-time parents-to-be, the Duke and Duchess of Sussex have plenty to worry about already – but thanks to the US tax system, there could be one more thing keeping Harry and Meghan and their new baby awake at night.
Since the royal couple announced their pregnancy last October, all eyes have been on Meghan and her emerging bump – and it seems even the palace accountants are taking interest.
That’s because as US citizens, both Meghan and her baby – who will be seventh in line to the British throne – will be liable to pay US taxes, which could potentially open up the notoriously private royal accounts to the Internal Revenue Service (IRS).
“The United States has – unique among nations – a citizenship-based taxation (system), so as long as Meghan is a citizen of the United States she is taxed,” explained David Treitel, the founder of American Tax Returns Ltd., which provides taxation advice to US expats.
The law means US tax inspectors could scrutinize Harry and Meghan’s royal wealth, and the income of their newborn child.
“The baby is being born to a United States citizen and that baby, little boy or girl, who comes along in the next few weeks, will automatically be a citizen of the United States simply because her mother is,” Treitel told CNN. “There is no other precedent of anybody else in the Royal Family who’s been American. So nobody else has ever faced this circumstance before.”
Britain's Prince Harry and Meghan, Duchess of Sussex, may face scrutiny from US tax inspectors.
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As a US citizen, regardless of where she lives, Meghan will be obliged to file a US tax return and to report any foreign accounts, assets over $200,000 and gifts valued more than $15,797 “regardless of whether it is actually in your possession,” according to the IRS.
Meghan may have to declare items like the wedding ring gifted by the Queen from a nugget of Welsh gold from the Royal Collection, the priceless diamond in her engagement ring taken from Princess Diana’s world famous jewelry collection, wedding presents from international royalty and A-list friends. Then there’s the biggest gift of all – the multi-million-dollar newly renovated home, Frogmore Cottage, in Windsor where the couple got married.
“The Queen has got to sit there and her advisers have to sit there thinking: well if I lend Meghan a tiara, if I have the baby use a beautiful silver rattle that was used by Queen Victoria, how much is that worth? What’s the value of it? How much is to be reported to the States? It’s a tough question, it’s not easy,” Treitel said.
Meghan may have to declare valuable gifts such as her wedding and engagement rings.
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Not only will Meghan have to declare gifts but if she considers selling any of them, she would be taxed on any rise in their value – and with her name attached to them, the jump in value is likely to be great.
While all of this could create a big tax headache for the royal couple, it won’t have come as a surprise. Treitel believes Harry and Meghan will have been considering potential tax troubles, “long before they were married, when they were dating, just in case a baby came along because they knew if they had a child that the baby would be American.”
Photos: Royal romance: Harry and Meghan
Harpo Productions/Joe Pugliese
Britain's Prince Harry and his wife Meghan, the Duchess of Sussex, are pictured during an interview with Oprah Winfrey, which aired in the United States in March 2021. It was their first sit-down appearance since leaving Britain last year.
Meghan celebrates her son's first birthday with a reading of the children's book "Duck! Rabbit!" in May 2020. In a video posted online -- and filmed by her husband -- Meghan read to Archie from the popular book and encouraged fans to donate to a number of causes aimed at helping young people.
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The couple attends the annual Festival of Remembrance in November 2019.
Photos: Royal romance: Harry and Meghan
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Harry and Meghan attend a pre-ceremony reception for the WellChild Awards in October 2019.
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Meghan is photographed during a royal tour of South Africa in October 2019.
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Archbishop Desmond Tutu kisses Archie, Meghan and Harry's son, in September 2019.
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Harry and Meghan dance during their royal tour of South Africa in September 2019.
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Meghan holds Archie during the South African tour.
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Harry and Meghan greet singer Beyoncé and her husband, rapper Jay-Z, as they attend the European premiere of the film "The Lion King" in July 2019.
Photos: Royal romance: Harry and Meghan
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New York Yankees manager Aaron Boone presents the couple with a jersey for Archie before a Major League Baseball game in London in June 2019.
Photos: Royal romance: Harry and Meghan
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Queen Elizabeth II looks at her new great-grandchild, Archie, in May 2019. Prince Philip is on the far left. Meghan's mother, Doria Ragland, is next to her at right.
Meghan and Harry walk past tapestries during a visit to Rabat, Morocco, in February 2019.
Photos: Royal romance: Harry and Meghan
Samir Hussein/WireImage via Getty Images
Meghan and Harry attend a Christmas Day church service in December 2018. With them, from left, are Prince Charles; Prince William; and William's wife Catherine, the Duchess of Cambridge. Harry and William are the two sons of Prince Charles and the late Princess Diana.
Photos: Royal romance: Harry and Meghan
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Meghan and Harry cheer on sailors during the Invictus Games in Australia in October 2018.
Photos: Royal romance: Harry and Meghan
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The couple talks to members of OneWave, an awareness group for mental health and well-being, in Sydney in October 2018.
Photos: Royal romance: Harry and Meghan
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Meghan and Harry pose with the cast and crew of the musical "Hamilton" after a performance in London in August 2018. Harry gave those in the theater something to remember after breaking into mock-song at the end of the show. The show was held to raise money for his HIV charity, Sentebale.
Photos: Royal romance: Harry and Meghan
Anwar Hussein/WireImage/Getty Images
Members of the royal family watch a flyover during a July 2018 event marking the centenary of the Royal Air Force. From left are Prince Charles; Prince Andrew; Camilla, the Duchess of Cornwall; Queen Elizabeth II; Meghan, the Duchess of Sussex; Prince Harry; Prince William; and Catherine, the Duchess of Cambridge.
Photos: Royal romance: Harry and Meghan
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Meghan and Harry attend the Royal Ascot horse races in June 2018.
Photos: Royal romance: Harry and Meghan
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The couple poses with family members after getting married in May 2018.
The couple watches Coach Core apprentices take part in a training exercise in Birmingham, England, in March 2018. The Coach Core apprenticeship scheme was designed by the Royal Foundation to train young people to become sports coaches and mentors within their communities.
Photos: Royal romance: Harry and Meghan
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Harry and Meghan join Prince William and Catherine, the Duchess of Cambridge, during a Royal Foundation Forum in February 2018.
Photos: Royal romance: Harry and Meghan
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The couple watches a dance class during a visit to Cardiff, Wales, in January 2018.
Photos: Royal romance: Harry and Meghan
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The couple meets well-wishers during an appearance in London in January 2018.
Photos: Royal romance: Harry and Meghan
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A shop worker in Windsor, England, adjusts memorabilia celebrating the engagement of Harry and Meghan. Their engagement was announced in November 2017.
Photos: Royal romance: Harry and Meghan
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Meghan flashed her engagement ring to reporters during a November 2017 photo call. The ring, designed by Harry, featured a large diamond from Botswana and two smaller outer diamonds from the personal collection of Harry's late mother.
Meghan and Harry made their first public appearance as a couple at the Invictus Games in Toronto in September 2017. The pair were introduced in July 2016 by mutual friends in London.
Photos: Royal romance: Harry and Meghan
Rupert Hartley/Shutterstock
Harry and Meghan embrace at a polo match in May 2017.
The only way for Meghan to avoid paying US taxes would be to renounce her US citizenship once she becomes a British citizen. However, even if she does so, the couple’s baby will still be liable for US taxes until the age of 18.
According to the US Department of State, in the case of the royal baby, he or she will acquire US citizenship because s/he was born in wedlock abroad to an American citizen who has lived in the US for a period of five years, at least two of which were after the age of 14.
That means that throughout the child’s life, he or she will also have their assets and income exposed to US taxes – including any “unearned income” over $2,100 – until they are 18 years old, and have the opportunity to renounce their citizenship, if they choose to do so.
Treitel believes that as soon as the royal baby is born, he or she will inherit investments which will generate income that will be reportable and taxable in the US.
“One would expect because the Queen comes from a wealthy family, Diana came from a wealthy family, we would expect that they’ve put aside some investments for future generations, presumably to future unnamed children and grandchildren and so on,” Treitel explained.
To add to this, the baby will likely receive a trust fund that enables the Royal Family to pass money down the royal line. According to Treitel, this would fit the description of a foreign trust, wherein Americans receive money from a trust fund set up abroad, and therefore can be taxed in the US.
The minefield of the US tax system means Harry and Meghan’s baby will likely create a lot of paperwork for the Royal Family’s accountants.
