Prince Harry and Meghan Markle have now moved on to their new arrangement after officially retiring from their royal work roles on April 1 – and they begin this new era under the sun of Los Angeles, Meghan’s hometown.
While this is an easy decision, legally speaking, for Meghan and little Archie – who are both American citizens – it’s a little more complicated for Harry. The Prince’s financial situation and many others may soon change dramatically – if, that is, he and his family plan to settle in America in the long term.
Here, the tax and immigration hurdles that Prince Harry will have to overcome if he chooses to stay.
If Harry lives here too long, he will have to pay for US taxes.
Whether or not someone is considered a US resident for tax purposes depends on the number of days they spend in the country. A formula (somewhat complicated) is used to calculate the number of days required: if a person spent 31 days in the United States during the current year, and a total of 183 days during the year in courses and the two preceding years, although the days of these two preceding years each count less than a full day (each day of the preceding year counts for 1/3 of day, and each day of the preceding year which counts for 1/6 of a day) – they are considered a resident.
An easy shortcut, says Dianne Mehany, a lawyer specializing in international tax planning, is to make sure you don’t spend more than 121 days a year in the United States.
But as Henry Bubel, a lawyer who works with wealthy, cross-border families, explains, there is a way to increase that number. “If he is able to show that he has a closer connection to England, then he could stay more days under the US-British tax treaty,” said Bubel, estimating that the prince could get up ‘about 150 days.
This argument is made a little more complicated given Harry’s well-known decision to step back from his role as royal senior – a decision that could be seen as a “decisive break with the UK,” notes Mehany. . However, he and Meghan have kept a residence in the United Kingdom (Frogmore Cottage in Windsor) and have repeatedly expressed their desire to support the Queen and the Commonwealth.
Mehany believes that, especially in 2020, this could be the case for Harry. “Honestly, if he’s less than 183 days old, I think that’s most likely a solid argument,” says Mehany, adding, “Someone who spent very little time in Los Angeles until 2020 – and has been basically trapped here because of the way the world has closed – you have a convincing argument that you are not really a resident of the United States. So interestingly, the current pandemic could help Harry’s case.
But it would be difficult to use it in the future. “If you try to claim it too many years in a row, at some point, the IRS will say,” No, you have no closer connection to another country, because you regularly spend 6 months a year in the United States, “said Mehany.
It is also possible that Harry is pursuing a tie-break position under the US-British treaty, which would allow someone who accidentally becomes a resident (in other words, exceeds the number of days allocated) avoid income taxes in the United States. There is also a downside to pretending that: while Harry would avoid paying taxes, he would still have to file a load of paperwork and disclosures. “You still have to file a multitude of information returns, disclose your global assets, disclose your trusted positions, disclose your controlled foreign companies, disclose your foreign investments,” says Mehany. And like claiming a closer connection to another country, the IRS is less likely to allow it each time it is claimed.
All of this, of course, still assumes that he spends less than half the year in the United States – and it’s not clear at the moment if that is the case.
Yes, that means that the IRS could gain insight into the finances of the royal family.
Even if Harry has no income, if he has to deposit in the United States, he will have to disclose information about his holdings in a bank account. “It wouldn’t tell you anything else about the rest of the royal family’s finances, except by implication,” said Bubel. “However, if he were a beneficiary of trusts, where he received distributions from this trust while he was a resident, there would be complicated reports and complicated tax analyzes that would have to be done. “
If Harry owns more than 10% of a foreign company, he will have to file information on that company – which could shed light, according to the company.
However, the finances of the royal family as a whole are opaque, and it is unclear whether Prince Harry holds anything in his own name, or whether he is simply the beneficiary of trusts.
But Harry’s taxes also depend on immigration.
There are a few visas that would exempt him from the requirements described above, but each has its own challenges.
Technically, Harry could go back to school to get around the boundaries. If he applied for a student visa and followed a qualified program, his days as a student would not count toward that 120-day number. “You would be surprised, but many people in his age group can do it, you just have to enroll and enroll even in doctoral programs,” said Bubel. (Harry never enrolled in college, instead of pursuing a military career, so he would pursue a bachelor’s degree.)
While this is a good solution to his tax problems, Harry is unlikely to become a student anytime soon. Another option? Obtaining a diplomatic visa.
Harry has certainly engaged in diplomatic activities in the past, but now that he has stepped back from his senior royal role – and as Buckingham Palace said, he and Meghan “can no longer officially represent the Queen “, – it seems unlikely that he’d get a diplomatic visa.
“It would really be at the discretion of the British government,” said Parisa Karaahmet, partner at the immigration law firm Fragomen. “He would have to assume a role consistent with that of government representative. “
And really, as Bubel notes, “He comes as a private citizen, not as a government official. “
And there are taxes he could never avoid.
Harry and Meghan have made it clear that they plan to earn their own income – and if that income is made in the United States, they will have to pay taxes on it.
For example, before the Sussexes even moved to L.A., it was reported that Harry had been paid for a speech in Miami. Unless it benefits a charity, this payment “would be considered personal service income and tax payable in the United States, whether resident or non-resident,” says Mehany. . “Because that would be what we call income from American sources. “
Besides the taxes, if he wants to stay in the United States for a while, Harry will need a visa.
All of the tax scenarios described above assume that Harry would like to avoid being classified as resident, either to avoid taxes, or simply because he does not plan to spend more than 121 days a year in the United States. But it is unclear what he and Meghan are planning for their future, and it is entirely possible that they hope to stay in Los Angeles for the long term. If so, Harry will have to deal with immigration.
British citizens can stay in the U.S. for 90 days at a time under the U.S. visa waiver program. Under this arrangement, “He is not allowed to work. He is not allowed to reside or that sort of thing here. And he can’t extend that time, but he can leave the U.S. and come back later for another 90 days. period, “says Karaahmet.
However, this is not a long-term solution. “So it might work at first, but ultimately, if he’s going to be spending a lot of time here, he’ll end up choosing one of these visa options or even applying for permanent residence,” says Karaahmet.
In terms of visas, in addition to the student and diplomatic options above, Harry could apply for an O-1 visa, for “Individuals with Extraordinary Abilities or Achievements”. Says Karaahmet, “It is quite common for individuals to apply for the O-1 classification if they can show that they are achieving a very high level of achievement in their fields. To be famous alone would not be enough for Harry, but perhaps he could claim an extraordinary feat in philanthropy, or something like that.
He should also be able to prove that he worked in this area of expertise in the United States and would likely require an employer or organization to sponsor his application. “The downside of O-1 is that it has to be renewed periodically and that forces it to continue this relationship with this organization,” said Karaahmet. “So it’s a work visa, really. “
An organization that could work well? Harry and Meghan, a nonprofit, plan to get started. Although details on the project are scarce so far, it could theoretically provide the Prince with the sponsorship he needs to get the O-1.
“The organization would be such that there is a real structure around it and it has a payroll and other people and maybe a real office, a physical office,” Karaahmet added as a warning. “So, more than just a type of shell company. But yes, it is possible for an organization that he and his wife establish to sponsor it. “
Harry could also continue with his permanent residence.
This is where Meghan’s US citizenship could really come in handy. As the spouse of an American citizen, Harry has the right to apply for permanent residence, although it does take some time. Under normal circumstances, an applicant would consider several months; given that the current pandemic has closed American consulates around the world, it would take even longer. (It is not excluded that Harry’s request may be processed more quickly than that of others, given his status, but there is no guarantee that this would be the case.)
The advantage, however, is that Harry would not have to work to continue living in the United States, or worry about renewing a visa. However, Karaahmet believes it is unlikely that he will pursue this option “for many reasons, not the least of which is tax-related.”
It may take some time before the public learns of Harry and Meghan’s long-term plans, but whatever plans they are currently developing, they surely take these legal issues into account.