Will the newest royal baby have to pay US taxes

The newest member of the royal family, Archie Harrison Mountbatten-Windsor was born as the seventh in line to the British throne. He’s also considered a US citizen, as his mother has yet to gain UK citizenship. As such, he joins the 180,000 US expats in the UK who are liable for US taxes.

While Kensington Palace did confirm to CNN that Meghan Markle will eventually become a UK citizen, it does take a number of years. When she is a UK citizen, it is then a matter of whether she renounces US citizenship or retains dual nationality. Either way, Archie will undoubtedly have someone to sort his finances for him.

It’s rather different for the average US expat. The US taxation system is famously one of the most complex in the world, and even more so for those living and working overseas.

Understanding US expat tax requirements

Out of all the countries in the world, just two tax their citizens no matter where they live and work. They are Eritrea and the United States. Since the Revenue Act was introduced in 1962, US citizens are liable to pay taxes to the Federal Government no matter where they live and work.

Although every US expat must file taxes, double taxation agreements mean that few are liable to pay much, if any. However, in addition to filing taxes, US expats are also required to report foreign bank accounts if they add up to $10,000 at any point over the preceding year.

FBAR and FATCA requirements

The Foreign Account Tax Compliance Act (FATCA) was first introduced in 2010 to track down US citizens hiding assets overseas. Expats who hold assets overseas are obliged to report these to the IRS using the Statement of Specified Foreign Financial Assets (Form 8938). This is as well as the longer standing requirement to report Foreign Bank and Financial Accounts (FBAR) with FinCEN Form 114.

Many US expats are unaware of their obligation to file an FBAR, assuming that it only applies to savings and current accounts. However, it also covers business accounts, mutual, trusts and, in some cases, business accounts.

FATCA doesn’t just demand reporting from US expats, but also from banks themselves. They are required to report funds help by US expats to the Federal Government. This has led to problems for some expats who find that banks don’t want to deal with the extra administration, and therefore won’t allow them to open accounts.

Since FATCA was introduced, there have been concerns raised by officials that it has major failings. A Government report recommends various changes to how US expats are required to report foreign assets, in its recently released findings.

The complexities of the US tax system

It’s well known that the US tax system is incredibly complex, with all US citizens obliged to understand what they need to file and when. It’s arguably even more so for US expats, who must deal with the tax requirements of both their origin country and the one in which they live.

Some choose to renounce US citizenship, something that has increased over recent years. However, this is a drastic step that most do not want to take. With the US expat tax filing deadline of 17 June 2019 now approaching, it’s important that citizens understand their obligations.

If this affects you as a US expat, you can apply for an extra extension until 15 October 2019 using Form 4868. If you need assistance in correctly filing US taxes in order to avoid penalties and non-compliance, it’s a good idea to work with an international tax expert. At Ingleton Partners, we can walk you through the entire process, and ensure that nothing has been forgotten.

Tom Griffiths

Tom is a member of the Association of Tax Technicians in the UK, an Enrolled Agent admitted to practice before the Internal Revenue Service and a member of the National Association of Tax Practitioners in the US. He is a specialist in the UK and US tax implications for individuals and in particular those who have interests in partnerships, corporations or trusts. Tom has a wealth of experience in private client tax issues and he previously practised at PwC, KPMG and Grant Thornton.