What will the financial future hold for Harry and Meghan? A right ‘royal’ roundup…

Sep 25, 2020

A busy year

Prince Harry and Meghan Markle have had a busy year. First off they caused a regal ruckus by dropping the HRH and shaking off royal duties; then then they took on the British tabloids in a constant battle for privacy. Most recently they’ve controversially signed their own VERY lucrative Netflix deal!

They’ve done their fair share of planet hopping too – from Frogmore cottage to the Canadian Lakes and then a brief fling with Beverley Hills. Since July they’ve taken residence in Montecito in Santa Barbara – and this time it looks pretty permanent .

Where is Montecito?

Montecito is a millionaire’s enclave nestled between the Santa Ynez Mountains and the Pacific. Property records state that the famous pair have bought a 14,500-square-foot home for $14.65 million. With a tennis court, a pool guest house and orchards it’s a pretty idyllic set up and a long way from Windsor. So have they put down roots? Is Harry going to apply for US Citizenship? Will Meghan ever qualify for UK Citizenship? Where will their tax obligations be now their Netflix deal has secured their financial position amongst the ultra high net worth? What does the future hold for Archie’s wealth? These are all questions that the Global press are musing on!

As an expert in global taxation and second citizenship my opinions are often sought out by members of the press on such issues; have a quick look at my media page to see recent features. After a blog on the Megxit scenario and a subsequent white paper on the topic I have frequently been featured in newspaper articles in the UK and beyond on questions surrounding the young family’s wealth management and tax planning.

So for all you Anglophiles, or for those of you who may find themselves in a similar position to Harry and Meghan – here’s my summary of the advice I would have offered to them in recent months, and links to where I’ve been quoted in the press!

Harry and Meghan

(Photo by Karwai Tang/WireImage)

Harry and Meghan: On Taxation

My original white paper, and this article I contributed to in The Times put forward a substantial case for the recent ‘non-royals’ to stay in Canada. If they had taken up permanent residence there they could have avoided being taxed twice and, crucially,  avoided estate taxation.

However, this was not to be, and their subsequent move to the US means they will need to get creative to avoid some hefty future tax bills.

The real price of their new Californian life…

It may well have a killer coastline and envy inducing lifestyle goals – but life in California comes with a high price tag. California is the most highly taxed state in the US. As high earners the Sussexes will be subject to the highest rate of federal tax – currently at 37% for all income over the $510,301 threshold. They will also be subject to the top rates of Californian state tax at 13.3% for earnings above $1 million. This is pretty steep when you consider some states (Texas and Florida for instance) have no state tax whatsoever. Combine these rates with the 2.35% FICA and the Sussexes could be giving away over half their earned income.

And it’s getting pricier by the minute…

Californian legislators have suggested that the state tax should be increased  to 16.8% whilst also introducing a 0.4% wealth tax. This wealth tax would count against the money that the couple already have (not just their earnings). This means that Harry’s inheritance from Princess Diana may even be subject to the Californian wax purse…

Read more:

Daily Express: Meghan Markle and Prince Harry’s ‘stiff US tax burden’ exposed

Daily Express: Prince Harry facing crippling new tax on Princess Diana’s inheritance after US move

A possible loophole? Meghan and Harry could move Netflix production offshore

The couple’s recent historic £112 million deal with Netflix have set them on the road to be Hollywood producers. Of course we don’t know how the deal was set up, and how much of that pot will be going directly to the Sussexes. Presumably a good portion will go towards financing their production company – unless Netflix have taken on the onus of covering expenses beyond this fee.

Their new production company will be subject to corporate tax, alongside the individual tax that the pair will have to pay (assuming that the company is not a not-for-profit). However they could eliminate the federal corporate tax rate by locating the production company off-shore.

They have spoken about wanting to make their content truly international  – and if this is indeed the case –  I would advise them to set up outside of the US in a zero-tax jurisdiction.

Similarly if their investors are international it may indeed prove easier all round if they conducted business in a non-tax jurisdiction such as the Cayman Islands.

I imagine a decision like that may well garner bad press but in reality the reasoning behind such a decision is sound. If the production company is based in the US and the investor is from a non-dom (such as the UK) the investor would have to seek a refund on the tax paid by the corporation. This is a royal pain all round (pardon the pun!)

By contract Cayman would act as a tax neutral destination. A multitude of investors from a variety of places can invest, and depending on what those investors’ tax situation is, they do so at their own tax liability. Indeed there’s Royal Precedent for banking offshore- the Queen herself holds £10million of her private funds in the Caymans.

Read more of my thoughts behind the advantages of banking offshore in these recent articles:

THE NEWS: Meghan Markle, Prince Harry advised to move company offshore to avoid heavy taxes

DAILY STAR: Meghan Markle and Harry could face unexpected bills despite huge £112m Netflix deal

The Sussexes, the US Election, and the tax fallout…

One would imagine that both Harry and Meghan are supporting Biden’s presidential run this November. Meghan has previously made her disdain for Trump very clear; whilst Harry has a personal relationship with Biden as both he and his wife are supporters of the Harry’s charity The Invictus Games.

However if Biden does indeed get into office there will be costly implications for the Sussexes.

Currently capital gains tax is much lower than income tax with a cap at 20% (income tax is capped at 37%). Biden plans to close this gap by raising both taxation levels to an upper limit of 39.6%. In his words:

“A guiding principle across our tax agenda is that the wealthiest Americans can shoulder more of the tax burden, including in particular by making investors pay the same tax rates as workers and bringing an end to expensive and unproductive tax loopholes.”

After their historic Netflix deal the Sussexes easily rank amongst America’s most wealthy. If any of their properties or stocks go up in price they will be liable to pay far more tax in a Biden administration.

However any change in the tax system will have to be ratified by both the House of Representatives and the Senate. Obama was unable to do this whilst he was in office and it’s likely Biden will face the same opposition.

Read more of my thoughts on this subject in the following articles:

Daily Express: Meghan Markle dilemma: Joe Biden could cause major difficulties for Sussexes

Daily Express: Royal warning: Biden victory may bring ‘significant changes’ to Meghan and Harry’s US life

What will Archie’s tax obligation be?

Inheritance tax is a huge financial obligation for those set you inherit large fortunes from their families. In the UK the tax free allowance is set at just £325,000. Any sum over that figure will be taxed at a hefty 40%. The money that Harry inherited from Diana would have been subject to this, and anything he receives from Charles will also be taxed at this rate.

Inheritance tax in the US is also set at 40% – however their tax free allowance is considerably higher at a huge $11,580,000 (£8,965,000).

Archie, if and when he inherits form Meghan will automatically qualify for this much more favourable rate. His father would need to be a US domilicile in order to benefit from the same favourable rate – which would necessitate him paying US taxes during his lifetime.

Read more about Archie’s future wealth considerations in the following articles:

THE EXPRESS: Archie could get MILLIONS of tax-free money from Harry thanks to huge perk in US law

Will the IRS be able to look into Royal Finances?

Many have pondered whether the Sussexes’ decision to base themselves in the US will result in enabling the IRS into royal finances. However the idea that  the IRS would be able to look at the finances of royals like Prince Charles – though his potential bankrolling of his son is pie in the sky.  They won’t even be allowed to view Harry’s finances unless he becomes a US domicile subject to US taxes. This would happen either though Meghan sponsoring him for a green card or for staying in the US long enough to pass the substantial presence test.

Of course, Meghan is reportable to the IRS – and they have a right to look at all US source income.

Any contribution from Charles from his personal wealth to his son and his wife will be noted by the authorities (as they will be notified through the SWIFT banking system). However he has merely to explain that such a transfer was a gift. The US does not tax gifts so they don’t have any recourse to look any further.

Read more in this article:

Meghan Markle and Prince Harry told whether IRS will gain access to royal finances

 

Harry and Meghan – On Citizenship

Will Harry apply for Dual Citizenship?

With Harry now owning a permanent residence in the US many have been left wondering what he will now do in terms of his citizenship.

Meghan and Archie are of course US Citizens but it has been confirmed that the Prince will not be seeking a dual US/UK citizenship; nor will he pursue a green card through his wife.

The diplomatic A1 visa

One route that Harry could reply is applying for a diplomatic A1 Visa. As a member if the Royal Family, 6th in line to the throne he has the credentials. However it’s unlikely that this is the route he’ll take.

Diplomtic appointments are covered by the Vienna Convention and in order to qualify he would need the UK to appoint him in the US to the US Government. The US would then have to accept him as a diplomat. Historically Royals have indeed taken on roles of soft diplomacy via their overseas tours. In this capacity they would be representatives of the Queen.

A Diplomatic Visa would leave Harry in a situation where he was not in control of his own status. It would grant him the right to live in the US until the visa is withdrawn – and diplomatic appointments are made by the Government not the Queen. Therefore any future government could choose to rescind the appointment and therefore his ability to stay in the US.

Freedom of Speech

It has become clear that Harry and Meghan want to speak up on potentially sensitive political issues. In their new role as documentary producers for the streaming giant Netflix this desire for an independent voice is more obvious than ever. As a diplomat, and a representative of the Queen he would need to toe an apolitical line that he seems to be pulling further and further away from.

Read More:

Prince Harry ‘to avoid hassle of representing Queen’ in US through diplomatic visa

 

United Kingdom’s Prince Harry speaks during the opening ceremonies of the the2017 Invictus Games in Toronto, Canada Sept. 23, 2017. (DoD photo by EJ Hersom)

The O-Visa

In order to remain and work in the US, whilst retaining taxation freedom, Harry could apply for a special type of Visa. The O non-immigrant visa is given to individuals with extraordinary ability or achievement in their field.

Harry’s position as the founder of the Invictus Games presents a strong argument in qualifying for this highly sought after visa.  The Invictus Games is the charity behind an international multi-sport event  for wounded armed service personnel that the Prince founded and continues to run.

The O non immigrant visa means he can live in the US and that he has permission to carry out any work relating to the Invictus Games or any other charitable activity. This is exactly what he has done to date. Even giving the lucrative speeches that he has would fall in to this category meaning that to date no US earnings are necessarily subject to US taxation. Numerous other people of note have used the O-visa to their advantage including David Beckham, Hustin Beiber and Rihanna to name a few.

However the substantial presence test still applies. The substantial presence test counts the number of days that you are present in the US. If Harry stays more than 183 days then he may be considered a US person for tax purposes.

Read more about how Harry may use the Invictus Games to qualify for the O-visa in the below articles.

Daily Express: Prince Harry ‘to use Invictus Games to qualify for key tax loophole’

Daily Express: Prince Harry could use loophole to avoid paying US taxes

Daily Express: Prince Harry could use classification for ‘extraordinary individuals’ to gain US visa

INQUISITR: Prince Harry Allegedly Plans To Use His Charity As A Loophole To Avoid Paying Taxes In The US

The Canadian Option

If Harry was my client I would offer the following taxation advice – that he should seek to become a Canadian resident. If he were to do this he could use Canada as a shield against claims in both the US and the UK. As Canada does not have an estate tax it may be considered as a potential tax haven. It is also very possible (with the right advice) to greatly reduce, or even eliminate Canadian taxation of non-Canadian income You can therefore avoid the worldwide taxation that so many countries impose.

Of course this requires careful legal pre-immigration tax planning.

Read more about this plan in my white paper  – or in my interview within the following article:

Daily Express: Prince Harry told to become Canadian resident to SHIELD against US and UK taxes

 

Will Meghan ever get UK Citizenship?

Many have suggested that, with her seemingly permanent move to the US, Meghan has effectively renounced her bid to become a UK citizen. Indeed she will now struggle to spend sufficient time in Britain to qualify if playing by the traditional rules.

However her special circumstances and her link to the monarchy may well be enough to grant her official citizenship.

Ultimately her position is up to whoever the home minister is at any given time, and it is within their powers to waive the normal physical presence requirement due to her position as being married to the person who is 6th in line to the throne.

After her marriage to Harry she acquired a ‘Leave to Remain’ status. She would have been able to apply for an ‘Indefinite Leave to Remain’ which is essentially permanent residence, after five years. At this point she may also have applied to become a naturalised UK citizen. Yet all of these requirements are entirely at the discretion of the Home Office and their officials

Read more:

Daily Express: Meghan could still get UK citizenship ‘under special circumstances’ despite Britain snub