Harry and Meghan's UK Tax saga explained in simple terms: What they gain and the costly miss

Prince Harry and Meghan Markle are returning to the UK with their two kids, Prince Archie and Princess Lilibet. While their decision has caused a stir online, this homecoming holds several secrets and benefits. And one could be a major tax relief that they might get as they return to the UK after living in the United States for six years. But if they are saving money at one point, then losing it at another. How? Read further to know more.

The Duke and Duchess of Sussex are planning to move back to Britain for an extended period later this month, six years after stepping down as senior royals and relocating to California in 2020. Their children will reportedly begin school in the UK in September.

What tax benefit are Meghan and Harry going to get?

If reports are to be believed, Harry and Meghan will live in a private, non-royal home outside London, and could receive a major tax benefit by returning to the UK after six years in the US, according to experts. But the timing of their return could save them from a major tax bill, and here we are talking about millions. As per the reports, Harry and Meghan’s fortune is $60 million.

According to Express UK, in the UK, if you live here, you have to pay Capital Gains Tax (CGT) when you make a profit from selling or giving away things that have increased in value.

Tax experts said that because Harry and Meghan have lived outside the UK for six years, some of their assets might not be taxed when they return.

"Harry and Meghan's six-year stay in America could prove important for Capital Gains Tax." Michele Tieghi, financial expert and founder of psyfi money, said. So with this, Meghan and Harry's time outside may help them now.

What is CGT and how does it work?

CGT normally works when you sell something in the UK for more than you bought it; you pay tax on the profit. But in Harry and Meghan's case, they have lived in America for 6 years; some of the profit their assets made during that time may not be counted by the UK tax office, and their time away can save them from coming under this tax bracket.

How will six years in the US also be beneficial for Meghan and Harry?

Harry and Meghan's Royal status is not changing, and they will be private, non-working members of the Royal Family. Their stay will be long, but not permanent. But with this, the UK has a rule to stop tax avoidance:

So what people do is live in the UK, move abroad, sell everything tax-free, and then come back to the UK. So to avoid this, they have created a rule that states that if you leave the UK for less than 5 years and sell your assets while abroad, the UK will still tax you when you return. Why might Harry and Meghan be safe? Because they left in 2020 and are returning in 2026. That's 6 years, which crosses the bar of 5 years.

So, the temporary non-residence rule probably won't apply to them, and any assets they sold while in the US may not be taxed by the UK.

Why they will have to pay big bucks under Foreign Income and Gains (FIG)

But this six-year-term will not benefit them in the new four-year foreign income and gains regime. Under this, people are required to spend 10 consecutive years out of the UK.

"Six years away is not enough to qualify for the new four-year foreign income and gains regime, which requires 10 consecutive years of non-UK residence.'' Financial adviser, Nouran Moustafa, from Roxton Wealth said.

In easy terms, if you are non-resident for 10 years in a row, when you come back to the UK, the government gives you a benefit for the next 4 years, and they will not tax you on the income and profit you make from your foreign assets. Because Harry only stayed away for 6 years, he misses out on a much bigger tax break that comes under this.