The recent announcement by the Duke and Duchess of Sussex to step back from their ‘senior’ royal status has brought back into focus that the duchess is a US citizen. When their marriage was first announced, several articles raised this, pointing out that, as such, she would still be liable for US tax. This raised concerns that the financial aspects of the royal family could come under the watchful eye of the Internal Revenue Service (IRS).
While this is something of a red herring, nevertheless, marriage between a US citizen and a non-American is quite common in the UK. This ‘split nationality’ of the marriage raises several tax issues that are quite different from a marriage where both parties are the same nationality.
The duchess, as a US citizen, is subject to all US tax laws. Being a member of the royal family provides her with no unique protection (other than sophisticated tax advisers who we can assume she has available to her). Thus, she must file US income tax returns on an annual basis reporting her worldwide income and pay tax on this whether she lives in the UK, Canada or anywhere else. Assuming she is or will become, a UK tax resident (subject to UK tax rules), she may be able to reduce her US tax by any tax she pays here. This would also hold true if she becomes a Canadian resident.
Due to all of the commentary from U.S. Citizens living abroad, I thought it was a good idea to include a portion of a post written by Tax Lawyer John Richardson:
“The Internal Revenue Code of the United States of America”
– Title 26
The beauty, genius and timeless wisdom found in the Internal Revenue Code include the principle that:
“The Internal Revenue Code in its majestic equality punishes both Homelanders and Americans abroad for having financial assets and accounts outside the United States.”
Part C – What does it mean to be a U.S. citizen abroad?
- All U.S. citizens abroad live outside the United States.Therefore, they live in “Foreign” countries. They will have bank accounts and retirement accounts that (although local to them) are “Foreign” to the United States. A FATCANatic (true believer in FATCA) would refer to your bank accounts as being “offshore”.
- Most U.S. citizens abroad are required to BOTH earn a living and invest for retirement.To this end they may have a pension from their place of employment (“foreign”). They may invest in mutual funds in their country of residence (foreign – PFIC). They may invest in retirement planning vehicles that are appropriate in their country of residence (foreign – PFIC). If you own an investment vehicle that is a PFIC, you should avoid either buying or selling without getting specialized counseling.