How Uncle Sam Can Tax the Queen of England’s Great-Grandson
Master Archie Harrison Mountbatten-Windsor was born on May 6, 2019, at a London hospital. There was nothing especially remarkable about Archie’s birth. With one exception: he’s the son of Queen Elizabeth’s grandson, Prince Harry, and his wife, Meghan Markle.
As with every royal baby in modern times, a media frenzy surrounded the event. Meghan was shamed on social media for supposedly carrying Archie the wrong way. Dedicated followers of fashion debated whether Archie would become a fashion icon like his mother Meghan. And critics of the royal family decried the fact that British taxpayers paid over $3 million to renovate the home Harry, Meghan, and baby Archie now live in.
Confirming my status as a tax nerd, though, my main interest is how Uncle Sam will collect tax from Archie. Because he’s not just a British citizen. Since his mother Meghan is a US citizen, Archie inherited her US status. And because the US requires citizens to pay tax on their worldwide income no matter where they were born or reside, Archie and other “accidental Americans” are on the hook.
Mother Meghan doesn’t even need to claim US citizenship for Archie. He’s a US citizen as a matter of law, thanks to the Immigration & Nationality Act. For children born outside the US after November 14, 1986, all that’s required for automatic citizenship is for one parent to be a US citizen and have resided in the US for at least five years, two of them after age 14. Meghan qualifies under these rules since she was born and raised in Los Angeles. While Meghan is required to report Archie’s birth to a US consulate, if she fails to do so, that won’t affect his citizenship status.
It’s difficult to feel sorry for Archie, though. He’ll hardly grow up deprived. The royal family he was born into has a collective net worth of nearly $90 billion. While Archie won’t necessarily inherit any of that money, Prince Harry a net worth of at least $30 million; Meghan’s net worth is around $5 million.
And Archie is likely to earn a substantial income in his own right as soon as he’s old enough to set up his own social media accounts. Indeed, he helped generated more than $125 million for the British economy in just the first two weeks of his life, mainly on increased sales of baby-related products.
Once a US citizen or permanent resident of any age earns $12,000 or more annually, they must start filing tax returns. They must also report gifts from foreign persons that are larger than $100,000. That threshold drops to $16,076 for gifts from foreign corporations or partnerships.
If Archie’s parents open a bank account for him in England, he’ll need to report the foreign account annually on Form 114 with the Treasury Departments financial intelligence unit (FinCEN) if its value exceeds $10,000.
The only way for Archie to get out of these compliance obligations is to expatriate – give up US citizenship. But he’ll have to wait until he’s 16 or older to do so. His parents can’t make that decision for him, even though he’s a minor.
Over the years, I’ve helped dozens of people expatriate. The main considerations I’ve asked them to review before making that decision are:
Will you be able to return to the US to visit relatives, receive medical treatment, etc.?
Does the passport you’re using in place of a US passport provide satisfactory visa-free travel options for the countries you wish to visit regularly?
Do you have a non-US home where you can not only live comfortably but also become integrated with the local community?
Do you have US assets or sources of income that would be taxed at a higher rate if you expatriate?
How will your US pension and Social Security income be taxed after expatriation?
For Archie, the answers to these questions range from yes to irrelevant. His UK passport allows him to enter the US visa-free and stay up to 90 days per visit. He has plenty of places in the UK where he can live very comfortably. Unless he inherits US assets, he won’t have to pay US tax after he expatriates. And it’s unlikely he’ll ever have US pension or Social Security income unless he lives in the US for an extended period or inherits a pension from his mother.
While a lot could change before Archie turns 16, as the circumstances now appear, expatriation is a no-brainer for the young royal. He should probably expatriate before he reaches 18½ because he will avoid Uncle Sam’s widely despised exit tax, no matter how much money he has saved or inherited by then.
Expatriation is likely the right decision for Archie. But is it right for you? The decision to give up US citizenship is a serious one. It's a step you should take only after consulting with your family and professional advisors. But it's the only way that US citizens and long-term residents can legally and permanently eliminate US tax liability on their non-US income, wherever they live.
Protecting your assets (and yourself) against any threat - from the government, the IRS or a frivolous lawsuit - is something The Nestmann Group has helped more than 15,000 Americans do over the last 30 years.
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