UNACCEPTABLE: Prince Harry and Meghan Markle’s ‘major tax break’ for spending 6 years outside UK
The timing of Prince Harry and Meghan Markle’s UK return has raised eyebrows among tax experts.
Prince Harry and Meghan Markle may benefit from a major tax break (Image: Getty)
Prince Harry and Meghan Markle may benefit from a major tax break by coming back to the UK after six years, experts suggest. Under Britain’s existing tax rules if you reside in the UK you have to pay Capital Gains Tax (CGT), which is a tax on profit made when selling or giving away assets, such as shares, property or valuables, where these have increased in value.
Tax experts have told the Daily Express that the number of years the Duke and Duchess of Sussex have lived overseas could mean their assets will not fall within the scope of CGT when they return. Michele Tieghi, financial expert and founder of psyfi money, said: “Harry and Meghan’s six-year stay in America could prove important for Capital Gains Tax.”
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The Sussexes will make their home in a non-royal residence outside of London and have already enrolled Prince Archie and Princess Lilibet in British schools.
It is understood there will be no change to Harry and Meghan’s role and status as private individuals and non-working members of the Royal Family during their stay, which will be for an extended period, but won’t be permanent.
Ms Tieghi explained that under the UK’s temporary non-residence rules people are prevented from moving abroad briefly, selling assets and returning to the UK without incurring CGT. However, those same rules generally cease to apply after five years.
The expert from psyfi money said leaving in 2020 and returning in 2026 suggests Harry and Meghan may therefore have passed the five year threshold, although their precise tax-residence dates would be needed to determine this for sure.
Financial adviser, Nouran Moustafa, from Roxton Wealth, agreed, adding that once the Sussexes become UK tax resident again, future gains on their worldwide assets can fall back into Britain’s tax net.
Future gains on Prince Harry’s worldwide assets can fall back into Britain’s tax net (Image: Getty)
She cautioned that the length of time the Sussexes have been away from Britain will not result in one particular benefit for the pair, who are returning later this month.
Ms Moustafa explained: “Six years away is not enough to qualify for the new four-year foreign income and gains regime, which requires 10 consecutive years of non-UK residence.
“So if major disposals were planned, timing them before UK residence resumes could make an enormous difference.”
From April last year, people returning to the UK have been able to potentially receive up to four years worth of relief on eligible foreign income and gains.
But this is only after at least 10 consecutive tax years of not living in the UK.
Ms Tieghi said: “Harry’s roughly six-year absence would therefore appear too short, meaning he’s missed out on that benefit.”
Mark Alexander, Founder of property118.com, said assets sold once Harry and Meghan are resident in the UK again may be taxed.
He said their worldwide income and gains would normally also come within scope, subject to any available split-year treatment.
Molly Monks, insolvency specialist at Parker Walsh, explained that people moving to Britain partway through the tax-year can sometimes qualify for “split-year treatment”.
This divides the tax year into an overseas portion and a UK portion, meaning certain foreign income generated before the move may remain outside the UK tax net.
Ms Monks explained that split-year treatment may be what has prompted claims Harry and Meghan timed their return perfectly.
She added: “But it is not automatic. The couple’s precise movements, homes, working arrangements and future intentions would all need to be examined.
“Moving in August rather than at the beginning of the tax year could reduce the portion of the year treated as UK-resident, but that is very different from avoiding UK tax altogether.”
The expert said as the British tax year runs from April 6 to April 5 anyone spending at least 183 days in the UK over that time will normally be considered UK-resident.
She said: “If Harry and Meghan arrived in late August and remained here continuously until April 5, they would exceed that threshold.
“UK residents are generally liable for tax on worldwide income and gains, potentially bringing American earnings, investments, royalties and overseas property income into consideration.”
Meghan and Harry are understood to be maintaining their mansion in Montecito, California, and holiday home in Portugal.
Ms Monks said: “Their return may have been perfectly timed for the school year or for family reasons, but calling it perfectly timed for tax is premature.
“Maintaining homes and income across several countries can produce overlapping obligations rather than an easy loophole.
“Before selling an asset, purchasing a British home or changing where income is received, anyone in this position would need specialist cross-border tax advice. With sums this large, getting the timing wrong could be extremely expensive.”
