The Prince of Wales officially announced the marriage of his son Prince Harry, to Meghan Markle. The wedding will take place in the spring of 2018. While I love a good royal wedding as much as the next Anglophile, this wedding brings unique tax consequences.
Meghan Markle is a US citizen. As such she is subject to the Foreign Account Tax Compliance Act (FATCA). This means that she must report any foreign bank accounts to the IRS every year, if they have more than $10,000 at any point during the year. If Markle and the Prince have any sort of joint bank account, then the IRS gets information about the Prince's finances. It also means that any financial institution that she uses must comply with IRS demands or face serious financial consequences.
It's kind of a crazy rule and for normal people it wreaks havoc. Many banks want nothing to do with American customers, which can make it difficult to live overseas. Foreign financial institutions, understandably, aren't keen on letting the US government nose around their records. The easiest thing to do is keep Americans out.
Markle will also be required to pay US taxes on any money she receives in the United Kingdom. I have no idea how the royals do their finances, but now the IRS will. The United States and Eritrea are the only countries in the world that tax based on citizenship, rather than residency. That means that even if Markle has no desire to ever live in the United States again, she'd still be subject to US Tax laws, as long as she maintains her US Citizenship. Other countries, sensibly, survive without double taxing their citizens abroad.
UK Foreign Secretary Boris Johnson got caught up in this financial mess. He was a US citizen because he was born in the United States, to British Parents. He moved back to the UK at 5, but because the US grants citizenship based on birthplace, he retained his US citizenship. He was one of the millions of "accidental" Americans who have no real ties to the United States, yet face financial burdens because of an accident of birth.
Johnson renounced his US citizenship in 2016 after the US government demanded a hefty amount of money from him based on the sale of his house.
If Markle retains her US Citizenship (which she must for at least 3 years after obtaining UK residency and marrying Harry), then any children born to the marriage will also be US citizens and subject to this. Once they are born, even the Queen herself cannot take away their US citizenship. The US government doesn't allow minors under 16 to renounce citizenship, and minors between 16 and 18 must demonstrate that they are not renouncing due to parental pressure. The US government advises you to wait until you are 18 to renounce.
Prince Harry's kids will be Americans. What if one grows up to be president and is in line for the throne at the same time? Brits are playing long-ball here, but it's a smart move. They want America back and this is how they'll do it.-- Greg Pollowitz (@GPollowitz) November 27, 2017
The sensible thing here would be for Parliament to grant a special exception to Markle and waive her waiting period for citizenship so that she can renounce her US citizenship, otherwise, the US Government will start its invasive look into royal finances.
Record numbers of Americans abroad have been renouncing their citizenship to avoid the many problems and expenses of retaining citizenship in a country they no longer affiliate with. While many media outlets speculate that this is due to hefty tax bills, it has far more to do with the invasive look into bank accounts, which make it difficult for Americans abroad to live normal financial lives.
This article has been updated to clarify the U.S.'s position on citizenship-based taxation.