Taxes Will Be a Royal Pain for Meghan and Harry

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I’m part of the small minority that thinks the big news from the United Kingdom is that “Brexit” will finally happen, thanks to Boris Johnson’s landslide victory last month.

Most everyone else seems more focused on the latest development with the royal family. The Duke and Duchess of Sussex, better known as Harry and Meghan, have decided to partially extricate themselves from the cloistered world of the monarchy – in part so they can take advantage of “the freedom to make a professional income.”

More power to them, I guess, if they can monetize their celebrity status.

The U.K.-based Economist expects that they’ll rake in lots of money.

In stepping down as “senior royals” while pronouncing that they “value the freedom to make a professional income” the Duke and Duchess threaten to unleash the spirit of capitalism on the very core of the monarchy. …The Sussexes are determined to turn themselves into a global brand. Their first move after they announced that they were stepping down from many of their royal duties was to unveil the name of their brand, Sussex Royal… Various branding experts have pronounced that Harry and Meghan have “a ready-made brand” that could earn them as much as £500m in their first year. InfluencerMarketingHub, a website, points out that, with 10m Instagram followers, they could expect $34,000 for a sponsored post. …They will need more than Prince Harry’s inheritance, which is estimated at £20m-30m, to keep up with the global super-rich.

I don’t have a rooting interest in their financial success. Indeed, I suspect they’ll wind up being annoying hypocrites like Harry’s dim-bulb father, lecturing us peasants about our carbon footprints while they fly around the world in private jets.

That being said, I am interested in the intricacies of international taxation.

And that will be a big issue for the couple according to Town and Country.

Now that Meghan and Harry intend to retreat from their royal roles, attain “financial independence,” and live part-time in North America, Meghan and Archie’s tax and citizenship plans are a little up in the air. …Meghan is still a US citizen, and therefore required to pay US taxes on her worldwide income. Prince Harry could technically elect to be treated as a US tax payer and file jointly with Meghan, but “he would never do that,” explains Dianne Mehany, a lawyer specializing in international tax planning. …When Meghan and Harry announced their engagement back in 2017, Harry’s communications team confirmed to the BBC that Meghan “intends to become a UK citizen and will go through the process of that.” …Once gaining UK citizenship, Meghan could elect to relinquish her US citizenship, and save herself the trouble and expense of filing US tax returns. “The only problem there is, she would have to pay the exit tax,” Mehany notes…regardless of what type of employment or contract work Meghan pursues, it will be taxable in the US. …”The real tricky thing,” Mehany notes, “is to make sure they don’t spend too much time in the United States, so that Harry becomes a resident of the United States, at which point his entire worldwide wealth would become subject to US taxation, which I know they want to avoid.”

For all intents and purposes, Meghan and Harry will face the same challenges as a multinational company.

  • Multinational companies have to figure out where to be “domiciled” just as Meghan and Harry have to figure out the best place to reside.
  • Multinational companies have to figure out where to conduct business, just as Meghan and Harry have to figure out where they will work.
  • Multinational companies have to figure out how to protect their incomefrom taxes, just as Meghan and Harry will try to protect their income.

For what it’s worth, the Royal couple already is being smart.

As reported by the U.K.-based Telegraph, they’re minimizing their exposure to the rapacious California tax system.

The Duchess of Sussex has moved her business to a US state used by the super-rich to protect their interests from scrutiny. The Duchess’s company Frim Fram Inc was moved out of California in December and incorporated in Delaware, which tax experts suggest could be done to avoid being hit with tax liabilities in California. …the move was made on New Year’s Eve…”You would want to do it on New Year’s Eve simply because if you go one minute into the next year you would owe some taxes to California for the year of 2020,” said Alan Stachura, from financial services firm Wolters Kluwer. …Mr Stachura, who helps companies incorporate in Delaware, added that the state offers “a tax benefit for items like trademarks and royalties”. …Experts say there are several benefits in moving a corporation to Delaware, including the state’s flexible business laws and its low personal income tax rates. …A source said that as the Duchess is no longer resident in California it was appropriate for the registration to be moved.

I can’t resist commenting on the last line of the excerpt. The fact that Meghan is no longer a resident of California is irrelevant.

After all, she’s not becoming a resident of Delaware.

Instead, she and her husband are being rational by seeking to minimize the amount of their money that will be diverted to politicians (the same is true of everyone with any sense in the United Kingdom, whether they are on the right or on the left).

It’s a shame Meghan and Harry feel too insecure to acknowledge that reality.

P.S. The Town and Country article noted that Prince Harry “would never” allow himself to become a tax resident of the United States because he wants “to avoid” America’s worldwide tax system. That’s completely understandable. He probably learned about the nightmare of FATCA after marrying Meghan and wants to make sure he’s never ensnared by America’s awful internal revenue code.

by Dan Mitchell
Daniel J. Mitchell is a public policy economist in Washington. He’s been a Senior Fellow at the Cato Institute, a Senior Fellow at the Heritage Foundation, an economist for Senator Bob Packwood and the Senate Finance Committee, and a Director of Tax and Budget Policy at Citizens for a Sound Economy. His articles can be found in such publications as the Wall Street Journal, New York Times, Investor’s Business Daily, and Washington Times. Mitchell holds bachelor’s and master’s degrees in economics from the University of Georgia and a Ph.D. in economics from George Mason University. Original article can be viewed here.