You may have thought that the whole world was focused on the safe arrival of Prince Harry and Megan Markle’s bundle of joy. Speculation is reaching a crescendo on when the birth will take place at Frogmore Cottage in Windsor, whether it will be a prince or princess, the all-important name, and the first photographs of mother and baby.
However, one unexpected aspect of Megan Markle's pregnancy is the news bump given to the tax quandary faced by USA citizens living in the UK. To the best London immigration solicitors
it came as a surprise that it was not just Megan Markle's choice of clothes and shoes that were bumped up and talked about , but her tax affairs as well.
Megan Markle's American nationality and the expected arrival of her dual nationality child has prompted open debate about tax and the interplay between the USA and UK tax systems, dual USA and British Citizenship
and the dilemma faced by many USA citizens as to whether they should renounce their USA citizenship and embrace British Citizenship
. Megan Markle is not the first and she and her baby will not be the last to face these quandaries.
USA citizens frequently ask the Top London immigration solicitors
for advice on renouncing their American citizenship and becoming naturalised British citizens. Advice is often sought from the best London immigration solicitors
because Americans living in London have taken tax and accountancy advice from expert expat accountants and understood the financial implications and complications of either being an American living in the UK or holding dual British and American citizenship.
How OTS Solicitors can help?
If you are a dual USA and British citizen or a USA citizen living in the UK and you are considering your tax obligations and immigration
status options, then you should take expert expat tax accountancy advice from your accountant and wealth manager as well as specialist legal advice from London immigration solicitors
OTS Solicitors are specialist in immigration
law matters providing expert, trusted immigration
law advice in conjunction with tax and financial advisors. The quality of the immigration
legal advice provided by OTS Solicitors is recognised by the inclusion of OTS Solicitors in the law directory, Legal 500.
USA citizens and tax in the UK
The best London immigration solicitors
do not hold themselves out to be tax experts on either the UK or the USA tax systems. For specialist advice, you need your London immigration
solicitor to work in conjunction with your expat tax advisor, wealth manager and, if appropriate, family office.
However, in simple terms, if you are a:
• Dual nationality USA / British citizen – adult or child;
• USA citizen (adult or child) living in the UK,
then you may be caught in a complicated tax trap. Megan Markle and her child will fall into these categories. Under UK and USA law, the baby will be born a dual citizen. As Megan Markle is an American citizen who has been a resident for five years, with at least two of them being since she was fourteen, the royal baby will be subject to USA tax and Internal Revenue Service returns.
The UK and USA tax complexities
• In the USA income earnt anywhere in the world by a USA citizen or green card holder (unless it falls into limited exempt categories) is taxed in the USA;
• If you fall within the USA tax system and receive an allowance from a family member or from a trust fund this could be treated as taxable income in the USA;
• The USA has a tax treaty with the United Kingdom. The main purpose of double tax treaties is to minimise the double taxation on any particular income through foreign tax relief, namely the USA Government may allow a tax credit to reduce USA tax liability if tax has already been paid on the same income in the UK;
• Whilst there are foreign earned income exclusions and foreign tax credit allowances and foreign housing exclusion you can still end up with a large USA tax bill if you do not get expert help on the available allowances;
• If you fall within the USA tax system you have to declare gifts and you may be subject to additional taxes if the gifts have risen in value if you come to sell them (that could result in a big tax bill if you have been gifted a deposit on a London family home);
• If you are an American citizen living in the UK or if you have dual nationality, you will be liable to pay tax in the UK if you are classed as a tax resident of the UK. You will be liable to pay tax on your worldwide earnings to the UK Inland Revenue Service. Alternatively, you could be considered a non-domiciled person for tax purposes. Very complicated rules apply to non-doms and tax ;
• If you are not considered a tax resident of the UK, you will only be liable for any income arising from work or investments in the UK (for example, a UK based salary or rental income).
Renunciation of USA citizenship
The Top London immigration solicitors
understand from USA immigration
solicitors that a child cannot renounce its USA citizenship until he or she is eighteen years of age. That is because parents cannot elect to make that citizenship decision on behalf of their minor child.
What does that mean for the royal family? Prince Harry's royal baby will be liable for American taxes until he or she is at least eighteen and Megan Markle will remain liable for American taxes whilst she remains a USA citizen living in the UK.
Some may think, so what? After all, it is not as if either mother or baby will be working. However, the best London immigration solicitors
’ advise that the implications of retaining USA citizenship include:
• Financial accounts must be declared to the USA Internal Revenue Service (IRS);
• The IRS have to be informed of all earned and non-earned income over a relatively modest annual amount;
• Requirement to file annual tax returns with the IRS;
• Requirement to report assets over a relatively modest amount;
• Requirement to report on trust funds or gifts. This can include capital and income distributions from trusts and loans from trust funds or gifts of property or loans of jewellery.
For the royal family, with the wives and children of the sons of Prince Charles and Diana, likely to have access to generous income allowances and trust income, the tax and administrative burden could be considerable.
Requirements to renounce USA citizenship
For the 200,000 plus Americans living in the UK there is often a conversation to be had about renouncing American citizenship, if they are happy and settled in the UK, despite the weather and the Brits obsession with it and all things Brexit
However, Top London immigration solicitors
advise that a USA citizen cannot renounce their USA citizenship without having an alternative citizenship and passport. That is fine if you are a dual British national, but if like Megan Markle you are an American citizen you have to work towards British Citizenship
before you can renounce USA citizenship.
• Right to enter and live and work in the USA free of immigration
control or visa requirements;
• Protection of the American embassy;
• The right to vote in USA elections.
However, although renunciation of American citizenship comes at a price the gains can be considerable, such as the sense of belonging in the UK and permanence and the easing of tax and administrative burdens.
For the wife of a prince you would think that obtaining British Citizenship
would be quick and straightforward. At present, Megan Markle’s immigration
status is probably resident in the UK on a spouse visa
• Meets the ‘continuous residence’ requirements;
• Has abided by the rules of her visa;
• Has passed the Life in the UK test.
To meet the continuous residence requirements, Ms Markle will need to prove that during her five years in Britain she has not left the country for more than 180 days in any of the years preceding the date she applied for Indefinite Leave to Remain
. No doubt, courtiers will be doing their calculations when looking at the length of any further foreign tours.
• They have lived in the UK for the past 5 years; and
• They have a British parent;
If Megan Markle becomes a naturalised British citizen, then she will be able to:
• Apply for a British passport;
• Live in the UK free of immigration
controls and restrictions;
• Work in the UK without having to have a work visa or being subject to other forms of immigration
control save for the standard right to work checks.
Once Megan Markle has obtained British Citizenship
then she can either, like her baby, have dual USA and UK nationality or elect to renounce her USA citizenship. The Top London immigration solicitors
anticipate that a decision to renounce her USA citizenship would be welcome news to courtiers and to her professional advisors but it is a very personal decision to take.
Megan Markle is not the first to have to grapple with USA citizenship and life in the UK or to have to consider whether British Citizenship
and retention or renunciation of her USA citizenship is the right route for her and her family. The best London immigration solicitors
have attended family office meetings with private client and trust advisors and administrators as well as non-dom and expat tax experts and wealth managers to look at the options for individual USA citizens resident in the UK. However, the major difference is that Megan Markle is experiencing her immigration
issues, namely life in the UK on a spouse visa
and the potential renunciation of her citizenship and the immigration
status of her mother, Ms Ragland, in what must feel like a very small goldfish bowl.
How OTS Solicitors can help?