Prince Harry and Meghan Markle have now transitioned to their new arrangement, after officially stepping back from their working royal roles on April 1 — and they're beginning this new era in sunny Los Angeles, Meghan's hometown.
While this is an easy move, legally speaking, for both Meghan and little Archie—both of whom are U.S. citizens — it's a little more complicated for Harry. The Prince's financial situation and more could soon change drastically — if, that is, he and his family plan to settle in America for the long haul.
Here, the tax and immigration hurdles that Prince Harry will have to overcome, should he choose to stay.
If Harry lives here for too long, he'll have to pony up for U.S. taxes.
Whether or not someone is considered a U.S. resident for tax purposes is dependent on how many days they spend in the country. A (somewhat complicated) formula is used to calculate the requisite number of days: if a person has spent 31 days in the U.S. during the current year, and a total of 183 days during the current year and the two years prior—though the days from those two previous years each count less than a full day (each day in the previous year counts for 1/3 of a day, and each day in the year before that counts for 1/6 of a day)—they're considered a resident.
An easy shortcut, explains Dianne Mehany, a lawyer specializing in international tax planning, is to make sure not to spend more than 121 days a year in the U.S.
But as Henry Bubel, a lawyer who works with wealthy and cross-border families, explains, there is a way to bump up that number. "If he's able to show that he has a closer connection with England, then he could stay more days under the U.S.-UK tax treaty," Bubel says, estimating that the Prince might be able to get up to around 150 days.
This argument is made a little more complicated given Harry's well-publicized decision to step back from his role as a senior royal—a move that could be seen as a "decisive split with the United Kingdom," notes Mehany. Still, he and Meghan have retained a residence in the U.K. (Frogmore Cottage in Windsor), and have repeatedly expressed a desire to support the Queen and the Commonwealth.
Mehany believes that especially in 2020, this could be Harry's out. "Honestly, if he's less than 183 days, I think that is very likely a strong argument," Mehany says, adding, "Someone who has spent very little time in Los Angeles until 2020—and was essentially trapped here because of the way the world has shut down—you have a compelling argument that you're not truly a resident of the United States." So, interestingly, the ongoing pandemic could help Harry's case.
But it would be hard to use this going forward. "If you try to claim it too many years in a row, at a certain point the IRS is going to say, 'No, you don't have a closer connection to another country, because you're routinely spending 6 months a year in the United States,'" Mehany says.
There is also the possibility of Harry pursuing a "tiebreak" position under the U.S.-UK treaty, which would allow someone who accidentally becomes a resident (in other words, oversteps the number of days allotted) to avoid U.S. income taxes. There is also a downside to claiming this: while Harry would avoid paying taxes, he'd still have to file a boatload of paperwork and disclosures. "You still have to file a myriad of information returns, disclosing your worldwide assets, disclosing your trust positions, disclosing your controlled foreign corporations, disclosing your foreign investments," Mehany says. And like claiming a closer connection to another country, the IRS is less likely to permit this each time it's claimed.
All this, of course, is still presuming that he spends less than half of the year in the U.S.—and it's not clear at the moment if that's the case.
Yes, this means the IRS might get a peek at the royals' finances.
Even if Harry has no income, if he is required to file in the U.S., he'll have to disclose information about his bank account holdings. "That wouldn't tell you anything else about the rest of the royals' finances except by implication," Bubel says. "However, if he were the beneficiary of trusts, where he received distributions from that trust while he was a resident, there'd be some complicated reporting and some complicated tax analysis that would have to be done."
If Harry owns more than 10% of a foreign company, he'd have to file information about that company—which might shed some light, depending on the company.
However, the royals' finances as a whole are opaque, and it's not clear if Prince Harry holds anything in his own name, or is simply the beneficiary of trusts.
But Harry's taxes are also dependent on immigration.
There are a couple visas that would exempt him from the requirements outlined above—but they each come with their own challenges.
Technically, Harry could go back to school to get around the limits. If he applied for a student visa and attended a qualified program, his days as a student wouldn't count toward that 120-day number. "You'd be surprised, but many people his age group may do that, just sign up and enroll, even in doctoral programs," Bubel says. (Harry never enrolled in university, instead pursuing a career in the military, so he'd be pursuing a bachelor's.)
Although it is a neat solution to his tax woes, Harry probably won't 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's stepped back from his senior royal role—and as Buckingham Palace has stated, he and Meghan "can no longer formally represent the Queen,"—it seems unlikely that he'd get a diplomatic visa.
"That would be really at the discretion of the British government," explains Parisa Karaahmet, a partner at immigration law firm Fragomen. "He would have to be undertaking a role that's consistent with that of being a governmental representative."
And really, as Bubel notes, "He's coming as a private citizen, not as a government official."
And there are some taxes he'd never be able to avoid.
Harry and Meghan have made it clear that they plan to earn their own income—and if that income is made in the U.S., they'll have to pay taxes on it.
For example, even before the Sussexes moved to L.A., it was reported that Harry was paid for a speech in Miami. Unless it was to benefit a charity, that payment "would be considered personal services income and he would owe tax in the United States, regardless of whether he was a resident or a non-resident," Mehany says. "Because it would be termed what we call U.S.-sourced income."
Taxes aside, if he wants to stay in the U.S. for awhile, Harry will need a visa.
All of the tax scenarios outlined above presume that Harry would want to avoid being classified as a resident—either in order to avoid taxes, or simply because he doesn't plan to spend more than 121 days per year in the U.S. But it's not known what he and Meghan are planning for their future, and it's entirely within the realm of possibility that they're hoping to stay in L.A. for the long haul. If that's the case, Harry will need to deal with immigration.
British citizens are able to stay in the U.S. for 90 days at a time under America's visa waiver program. Under that arrangement, "He's not allowed to work. He's 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 then potentially return at a later date for another subsequent 90 day period," Karaahmet says.
Still, that's not a long-term solution. "So it might work initially but, eventually, if he's going to spend a lot of time here, he's going to end up by going with one of these visa options or even applying for permanent residence," Karaahmet explains.
In terms of visas, in addition to the student and diplomatic options above, Harry could pursue an O-1 visa, for "Individuals with Extraordinary Ability or Achievement." Says Karaahmet, "It is quite common for individuals to apply for O-1 classification if they can show that they rise to a very high level of accomplishment in their fields." Being famous alone wouldn't be enough for Harry, but perhaps he could claim extraordinary achievement in philanthropy, or something of the like.
He'd also have to be able to show that he was working in that area of expertise while in the U.S.—and likely require an employer or organization to sponsor his application. "The drawback of the O-1 is it does have to be renewed periodically and it requires him to continue that relationship with that organization," Karaahmet adds. "So it's a visa that requires employment, really."
One organization that might work well? The non-profit Harry and Meghan are planning to launch. Though details on the project are scarce thus far, it could theoretically provide the Prince with the sponsorship he needs to obtain the O-1.
"The organization would be such that there's real structure around it and it has payroll and other individuals and maybe an actual office, physical office," Karaahmet adds as a caveat. "So, more than just a shell company type of thing. But yeah, it is possible for an organization that he and his wife establish to sponsor him."
Harry could also pursue permanent residency.
This is where Meghan's American citizenship could really come in handy. As the spouse of a U.S. citizen, Harry's eligible to apply for permanent residency—though that would take awhile. Under normal circumstances, an applicant would be looking at several months; given that the current pandemic has shuttered U.S. consulates around the globe, it'd be even longer. (It's not out of the question that Harry's application might be processed quicker than others', given his status, but there's no guarantee that it would be.)
The advantage, however, is that Harry wouldn't have to work to continue living in the U.S., or worry about renewing a visa. Still, Karaahmet thinks it's unlikely he'd pursue this option "for many, many reasons, not the least of which are tax-related."
It may be some time before the public learns of Harry and Meghan's long-term plans—but whatever schemes they're formulating now, they're surely taking these legal queries into account.
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