New photo Meghan and Harry face 'tax nightmare' at the hands of US officials

The Duke and Duchess of Sussex are pictured at a service to mark the centenary of the Armistice at Westminster Abbey on November 11

The Royal Family faces a tax 'nightmare' as US officials examine whether Meghan and Harry owe them a slice of their multi-million pound fortune, according to reports.

The Duchess of Sussex is still an American citizen so has to pay tax in the US, and this could extend to anyone else she draws money from, including her husband.

This could deplete both her $5million US fortune and Prince Harry's main source of private wealth, a £300,000-a-year trust fund on which he pays UK income tax.

The probe could even extend to the Queen and Prince Charles as they provide funding for the couple, aides told the Sunday Express, which reported that the royals are set to employ a team of US financial consultants to deal with the issue.

‘We're looking at a level of financial exposure the Royal Family has never had to face before,' one of the aides said.

The US Internal Revenue Service is known for being extremely strict in tracking down people they believe owe them money.

Meghan is reportedly living in the UK on a family visa, but she will have a complicated tax status as long as she remains a US citizen.

Tax laws mean that even if Los Angeles-born Meghan lives full-time in the UK, she will still have to file a US return every year.

US officials are set to be scrutinising Meghan's finances as part of a probe that could also include the Queen. They are pictured together at the opening of the Mersey Gateway Bridge in Widnes on June 14

Meghan's last return, which would have to have been submitted to US authorities by April 17, would have detailed any money she and Harry have made since they began living together.

'Of course this raises the tantalising prospect of Uncle Sam getting a look behind the velvet curtain - and seeing the private finances of the Royal Family,' US tax specialist Alistair Bambridge, of Bambridge Accountants, told DailyMail.com in February.

Meghan has to give the US taxman full details of her finances if she and her husband-to-be have joint assets, bank accounts or offshore trusts in excess of £143,100 ($200,000).

Perks she receives by joining the Royal Family such as the use of Nottingham Cottage, the grace and favour property in the grounds of Kensington Palace where she will live with Harry, need to be valued and declared, unless she is paying rent herself.

The Duchess of Sussex on October 31 during a visit to Rotorua in New Zealand 

And future TV income, such as repeat fees, will all be taxed by the US as long as she is a citizen.

Bambridge, who has offices in New York, London and Vancouver, explained: 'Duchess or no duchess, when it comes to the IRS, Meghan is like every other American citizen.

'Each year she must file her tax return and pay any tax she owes to Washington.

'The US income tax system is citizenship-based, so as an American it doesn't matter where in the world you live and work - your tax affairs are always Uncle Sam's business.

'Clearly Meghan's case is a unique one, as she may be taxed according to the rental value of a home she lives in for free - Kensington Palace.

'Working out the market rental value of a royal palace is not a task for the fainthearted.'

She may even have to declare personal items such as her engagement ring and wedding dress.

The diamond engagement ring Prince Harry gave Meghan has been valued at over £71,600 ($100,000) by royal watchers.

Because it is classified as a gift 'from a foreign person', Meghan would have to declare it to the IRS on a Form 3520 or suffer a £7,160 ($10,000) penalty.

Kensington Palace declined MailOnline's request for comment. The IRS has been contacted.

Anything to declare? What Meghan owns and earns, and how the IRS could take an interest in it

Earnings

Meghan will have to declare any fees she receives from playing Rachel Zane in Suits. She was estimated to earn $50,000 (£36,000) per episode.

Her final season starts next month but Meghan will receive repeat fees - 'residuals' - every time it is rebroadcast. The show is now extensively broadcast around the world.

Her annual salary was estimated to have totaled $450,000 (£324,000) before she met the prince, which included money from acting and sponsorships.

Markle now has no sponsorship deals and it is unlikely that she still has income from previous contracts.

Royal allowance

Meghan will have to tell the US taxman if she receives anything more than $100,000 (£71,600) from her fiancé or his family in the form of a royal allowance to cover expenses.

Since the age of 21, Prince Harry and Prince William have been receiving an estimated $450,000 (£324,000) a year investment profit from their late mother's $29.9m (£21.5m) estate, on which they pay UK taxes.

The two princes and William's wife, the Duchess of Cambridge, also receive an annual $4.88m (£3.5m) allowance from their father, Prince Charles, which is used to cover expenses like travel and wardrobe.

Property

Nottingham Cottage - the grace and favor property in the grounds of London's Kensington Palace where Meghan lives with Harry - may be taxed by the US if Markle's presence in it is seen as a substitute for income before her marriage.

Her tax preparer may advise her to declare it to avoid any ambiguity.

While she was filming Suits, Meghan rented a three-bedroom, two-bathroom home in Toronto's Seaton Village, thought to cost around $1,770 (£1,000) a month.

Joint assets

Meghan also has to give the US taxman full details of her finances if she and her husband-to-be have joint assets, bank accounts or offshore trusts in excess of $200,000 (£143,100).

Once married, Meghan would also have to make that declaration. In the U.S. couples file jointly and all assets are considered joint. However, because Meghan will be married to a non-resident, non-citizen, that will not apply to him.

There is one future - extremely unlikely scenario: if Harry becomes King with Meghan as Queen, the US taxman would take an interest in the British royal family's fortune estimated at $500 million (£360 million) and made up of property, art and investments. However, he is sixth in line to the throne, so such a detailed return is unlikely to ever happen.

Gifts

It's not just the US taxman that wants to take his cut from Meghan.

The actress will have to declare any luxury gifts she bought in the US for Prince Harry, the Queen and his family to the UK taxman - or face a hefty fine.

Gifts over $188 (£135) imported into the UK from outside the European Union are liable for customs duty and VAT.

Customs duty is charged at a rate of 2.5% on gifts between $188 (£135) and $877 (£630).

Above that threshold, the rate depends on the type of goods and where they came from.

VAT of 20% is also charged on the total value of the goods. The maximum penalty for not paying customs duty is $3482 (£2,500).

But a person caught for the first time is likely to receive a minimum penalty of $348 (£250), depending on how serious the contravention is.

The Royal Family's tax affairs have long been the subject of scrutiny.

The Queen voluntarily agrees to pay income tax and capital gains tax, and since 1993 her personal income has been taxable as for any other taxpayer.

Her Majesty has always been subject to VAT and pays local rates on a voluntary basis.

The Queen's wealth is derived from the Sovereign Grant, provided by the government, the Privy Purse - a historical term for her portfolio of land and properties - and her own personal investments.

In 2017, experts found the monarch contributes £1.8billion to Britain's economy each year through its contribution to tourism, the media and other businesses.

Maintaining the Royal Family is around £292million per year, which equates to £4.50 per person - just over 1p each day.   

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News Pictures Meghan and Harry face 'tax nightmare' at the hands of US officials

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