Introduction
The Duke and Duchess of Sussex are returning to the UK after more than five years in California… and tax experts have noted that their timing may have saved them from the reach of Britain’s temporary non-residence rules.
Whether this was planning or providence is unclear, but the tax implications are worth examining.
Prince Harry and Meghan Markle announced last week that they would be spending an “extended period” in the UK, with Prince Archie and Princess Lilibet enrolled in British schools.
Beyond the obvious family implications – bringing Harry closer to King Charles, who continues treatment for cancer – the move raises interesting questions about cross-border taxation.
The Five-Year Rule
The UK’s temporary non-residence rules exist to prevent a simple form of tax avoidance: leaving the UK briefly, realising gains or receiving income while non-resident, then returning without UK tax consequences.
Under these rules, if someone was UK resident in at least four of the seven tax years before departure and returns within five years, certain gains and income realised during the period of non-residence can be “recaptured” and taxed as if they arose in the year of return.
The rules catch a specific type of planning: the short trip abroad to crystallise a gain tax-free before returning home.
Harry and Meghan’s Position
The Sussexes departed the UK in early 2020. If their period of non-UK residence exceeds five complete tax years, the temporary non-residence provisions may not apply to gains realised during their time in California.
This is not to suggest they structured their departure around tax.
The reasons for leaving – royal family tensions, media intrusion, and the desire for a different life – are well documented.
But the tax consequences of staying away for more than five years are worth understanding.
What Does This Actually Mean?
To be clear, falling outside the temporary non-residence rules does not mean freedom from UK tax on all historical assets. The position is more nuanced:
- Assets held before departure that were disposed of while genuinely non-UK resident may escape the temporary non-residence recapture
- But once they become UK resident again, they will be subject to UK tax on worldwide income and gains going forward
- And they would need to have actually realised gains while non-resident to benefit — holding assets and returning with them achieves nothing
Whether Harry and Meghan actually made disposals that would have been caught by the temporary non-residence rules is unknown. Without knowing their specific transactions, one cannot say whether this timing “saved” them anything.
The Missed Opportunity
However, staying away even longer might have been more advantageous. From April 2025, the UK introduced a new four-year Foreign Income and Gains (FIG) regime for qualifying new residents.
To qualify, a person must have been non-UK resident for at least ten consecutive UK tax years before becoming UK resident. The regime then allows eligible foreign income and gains to be sheltered from UK tax for the first four years of residence.
Had the Sussexes remained abroad for ten full years rather than roughly six, they might have qualified for this relief on their return. As things stand, they will not.
As one tax adviser put it: “Whilst their return is welcome news, staying away a bit longer would have given them a much better tax result.”
Meghan’s American Problem
There is an elephant in the room: Meghan’s US citizenship. Unlike the UK, the United States taxes its citizens on worldwide income regardless of where they live. This is almost unique among developed nations and creates significant complexity for American expatriates.
While UK resident, Meghan will be subject to UK tax on her worldwide income and gains. But she will also remain subject to US tax on the same amounts. Although foreign tax credits and the US-UK tax treaty can prevent most double taxation, the administrative burden of filing in two jurisdictions and managing the interaction between two tax systems is considerable.
Some American expatriates eventually renounce citizenship to escape this perpetual tax link. That step has its own consequences — including a potential “exit tax” on unrealised gains. Whether Meghan would ever consider this is unknown, but the ongoing complexity of dual taxation is a permanent feature of her financial life unless she does.
Inheritance Tax: The Longer Game
From April 2025, UK inheritance tax exposure is increasingly linked to long-term residence rather than the old domicile framework. Under the new rules, worldwide assets come within scope of UK inheritance tax once a person meets long-term UK residence conditions.
This is a multi-year calculation. Both Harry’s and Meghan’s historical years of UK residence will count, and continued UK residence will accumulate further exposure. Estate planning in this environment becomes considerably more complex.
The Bigger Picture
The Sussex return illustrates several broader points about UK taxation of mobile individuals:
- Timing matters — The difference between 4 years 11 months away and 5 years 1 month away can be significant
- The rules keep changing — The non-dom regime that Harry likely understood when younger is very different from today’s residence-based system
- US citizenship complicates everything — Meghan will be navigating two tax systems indefinitely
- Tax is rarely the whole story — Whatever the fiscal implications, the Sussexes appear to have made this decision for family reasons
Conclusion
Whether by design or fortunate timing, Harry and Meghan’s return after more than five years places them outside certain anti-avoidance rules. But the practical benefit of this depends entirely on transactions we know nothing about.
What is clear is that becoming UK resident again brings them fully within the UK tax net going forward. For any royal family member accustomed to complex cross-border arrangements, competent tax advice will be essential.
Welcome home to UK taxation, Your Royal Highnesses. HMRC will be pleased to see you.