INSIGHT: Marrying a Prince—a Taxing Time?

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Lee Hamilton

Lee Hamilton

Lee Hamilton, Partner, Blick Rothenberg, U.K.

Although Megan Markle may not be focusing on her tax position right now, she will have some big decisions to make after her wedding to Prince Harry.

In the run-up to her big day, I expect that tax is the last thing on Meghan Markle’s mind. However, in the months to come, Meghan will need to focus some of her time on sorting out the tax position brought about by her Royal status.

Although Meghan will become resident under the U.K. tax rules and will be married to Prince Harry (a U.K. domiciliary), she could remain non-U.K. domiciled.

Fortunately for Meghan, the Domicile and Matrimonial Proceedings Act (1973) enables women to establish a domicile independent of their husband. For U.K. tax purposes, Meghan will have acquired the non-domiciled status of her father when she was born.

Unlike most people in the U.K., this means that Meghan could benefit from several significant U.K. tax concessions:

  •  Quite whether Meghan will receive a “salary” or “allowance” from the Royal Household is not clear. However, if she does receive any taxable employment income, her non-domicile status means that she can claim tax relief in respect of her non-U.K. duties for the first three tax years that she is resident in the U.K.
  •  As a non-U.K. domiciliary, Meghan’s non-U.K. investment income will not be subject to U.K. tax, provided that she does not remit this income to the U.K. This is known as the “remittance basis” of taxation and can apply for up to 15 tax years from the date that Meghan became U.K.-resident.
  •  There are also inheritance tax benefits of being non-U.K. domiciled. For non-U.K. domiciliaries such as Meghan, U.K. inheritance tax is only due on U.K. assets.

While these advantages are available to non-domiciliaries, Meghan would still have to elect to be taxed in this way via her U.K. income tax return.

Is Meghan Likely to Stay Non-U.K. Domiciled?

The domicile status that people acquire at their birth (known as a domicile of origin) is hard to change unless an individual chooses to replace their domicile. HM Revenue and Customs (“HMRC”) would normally consider a range of factors when determining whether someone has changed domicile.

Surprisingly, although Meghan will become a U.K. citizen in due course, this does not necessarily mean that she will be deemed to have renounced her non-domiciled status.

HMRC would consider other factors, such as whether the individual has had to stay in the U.K. for reasons beyond their control, whether the individual has made a will under English or Scottish law, and whether the individual has children in the U.K. To date, HMRC will not have considered whether “marrying a royal” should be a relevant factor, but I suspect it would be taken into account.

Over time, and under the circumstances, it is likely that Meghan will lose her non-U.K. domicile status. Of course, Meghan could simply choose to consider herself as U.K. domiciled and to forfeit any tax benefits. Or, Meghan could perhaps decide that she will claim non-domicile status for a few years (perhaps until she becomes a U.K. citizen) and take advantage of the aforementioned tax benefits.

Complicating all of this is the fact that Meghan is a U.S. citizen. This means that, irrespective of her residence status in the U.S., the U.S. will still seek to tax Meghan’s worldwide income. This may reduce the effectiveness of any U.K. tax planning, although fortunately the U.S. will usually allow credits to be claimed in respect of U.K. tax paid on any income which is also taxed in the U.S. Meghan may decide to renounce her U.S. citizenship at some point, although this is not straightforward and can lead to a large U.S. exit charge in respect of worldwide assets.

So, after the confetti has been cleared away and the honeymoon is over, there will be some big decisions for Meghan to make on tax.

Lee Hamilton is a Partner with Blick Rothenberg, U.K.He may be contacted at: lee.hamilton@blickrothenberg.com

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