Was Prince Harry and Meghan Markle's UK move after 6 years motivated by tax?

News of Prince Harry and Meghan Markle's return to the UK shocked royal fans across the globe when it was announced on Wednesday. But could their decision to relocate be motivated by tax?

While the couple are yet to reveal their reasons behind the decision to up sticks from across the Atlantic, which will see them move many miles closer to King Charles, Tax Director of Alexander & Co, Rowan Morrow-McDade caught up with HELLO! to unpack how tax may have influenced the Duke and Duchess's decision to relocate.

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According to Rowan, there is one rule in particular that means it is beneficial for the couple to move, but that there are other things also at play that are worth considering. "There could be ways in which it's beneficial, but there could also be ways in which it's detrimental," Rowan said. 

Would Harry and Meghan moving back after 6 years have a tax benefit?

Yes, one piece of legislation in place in the UK would mean that the decision to move back to the UK after six years away would be beneficial. This would be if Harry had sold any assets - which include property, shares, bonds, and fine art - for a profit whilst being a non-UK resident; assets include property, shares, bonds, and fine art.

If Harry had come back within five years of when he moved to the US, the UK would want to tax that gain too.

"The interesting point here is that they've moved back after six tax years and in the UK we have something called the Temporary Non-Residence Rules," Rowan explains.

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Adding: "This is anti-avoidance that stops you leaving the UK, selling an asset whilst you're a resident overseas, and then coming back to the UK. It applies if you come back within 5 years.

"So, it means that in theory, they could have sold assets whilst they've been in the US, although the US has quite a high capital gains tax rate, and not pay any tax on them now that they've come back to the UK. They’ve avoided the anti-avoidance."

It could be costing Harry and Meghan more money to return to the UK

While they would see the benefits of the tax relief should it apply, given Meghan's status as a US citizen, it could mean they are entitled to pay even more tax.

In the UK, we have a double tax agreement with the US, called the US-UK Double Tax Treaty, but while Meghan won't be taxed twice, she will still be required to submit a yearly tax return to the US and pay tax overseas if her tax bill is less in the UK.

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Rowan explains: "Meghan will still be required to pay tax in the US because, as a US citizen, she's taxable on her worldwide income gains even if she's not resident there.

"It's the only country in the world that has that regime, apart from Eritrea, which is why a lot of people are renouncing their US citizenship. US has a citizen-based taxation, so if you've got a passport in the US, you pay tax there."

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Rowan continued: "Obviously, you get a credit for tax already suffered elsewhere. So for example, if she was in the UK, which she will be, and she's earning money and paying tax here, if that's less than what she would have paid in the US, she's then gonna have to pay, top it up in the US as well. It's a strange quirk of the American tax system."

"When our clients try to take advantage of the temporary non-residence rules, they almost always go to a low-tax jurisdiction or no tax, but Harry and Meghan haven't. They've gone to the USA, which is not a low-tax jurisdiction."

Will tax impact how long they can stay in the country?

As there are tax benefits to returning to the UK, there is a tax benefit to leaving again. This is because of England's stringent rules on inheritance tax, so it could impact how long the Sussexes stay in the country.

As it stands, in order to remain unimpacted by UK inheritance tax, you have to have been living in the country for less than 10 years within a 20-year tax period. If you include Meghan's two years in the UK between late 2017 and early 2020, that would give her roughly eight years before she would need to leave again.

"In theory, if Meghan didn't want to bring her worldwide assets into the UK inheritance tax net, which she probably doesn't because we, we have an incredibly high inheritance tax in the UK compared to the US, then she would want to make sure that she spent at least less than 10 of the previous 20 tax years in the UK.

"If she left in eight years, then I suspect that would be to stop her estate, her worldwide estate, falling into the UK inheritance tax now."