The Royal tax break: why six years abroad could matter for Harry and Meghan

Harry and Meghan left for California in early 2020. It has been well reported that they returned to our shores at the end of August. In the UK there is a ‘temporary non-residence’ rule, often described as the five-year rule. The rule was introduced to prevent short-term tax planning, whereby individuals leave the UK temporarily, realise gains while non-resident and then return once those gains have fallen outside the UK tax net.

Under the rules, an individual may be temporarily non-resident if, broadly, they were a UK resident in at least four of the seven tax years preceding their last tax year of residence and their period of non-UK residence is five years or less. Certain gains and income arising during that period may then be treated as arising in the tax year in which they return to the UK.

In short, if you leave for a quick tax break, beware: the taxman may still come knocking on your door on your return.

Harry and Meghan left the UK for California in early 2020. The key question is whether their period of non-UK residence is sufficiently long enough for the temporary non-residence rules not to apply. Broadly, an individual who meets the prior residence condition would need to be non-UK resident, or treaty non-resident, for at least six complete tax years, or for five complete tax years together with a split year on either departure from or return to the UK, to fall outside the rules.

Whether they satisfy this test will depend on their precise UK residence position, including whether split-year treatment applied on departure or applies on their return. If the relevant conditions are met, the temporary non-residence rules may not apply to certain gains and income arising while they were living in California.

It does not necessarily mean they have saved any tax. Nobody will truly know what assets they may or may not have sold during their time in America.

But if they did make certain gains while living outside the UK, staying away for sufficiently long enough to fall outside the temporary non-residence rules could be very beneficial to them.

Whether the timing of their return was carefully planned or simply a coincidence is impossible to say.

However, being outside the five-year rule is not a magic ‘get-out-of-tax-free’ card. Once Harry and Meghan become UK tax residents again, they are firmly back within HMRC’s tax net and their worldwide income and gains going forward will generally be subject to the UK tax regime.

In a nutshell, any tax advantages relate only to what may have happened during their time away from Britain while living abroad. Returning to Britain means re-entering the UK’s tax net.

Ironically, from a tax perspective, staying away even longer might have been more beneficial for them.

Britain introduced a new Foreign Income and Gains (FIG) regime from April 2025, aimed at attracting qualifying international residents. To qualify, a person generally needs to have been non-UK resident for at least ten consecutive tax years before becoming UK resident.

Those who meet the criteria can potentially claim relief in respect of qualifying foreign income and gains for the first four years of UK residence.

The Sussexes have been away for about six years, falling short of the required ten years. As things stand, if they become UK residents in 2026/27, they would not appear to satisfy the ten-year non-residence condition required to claim relief under the FIG regime. So, on one hand, while they may have cleared one tax hurdle, they appear to have missed out on a potentially larger opportunity.

There is another complication for Meghan: her US citizenship, a problem that most Britons will not have.

The US and UK have two very different tax systems, which do not always align and require careful thought, planning and balancing. This often results in significant complexity for US expats.

As a US citizen, she remains in the American tax net regardless of where she lives. America taxes its citizens based on citizenship, not residence.

While UK resident, Meghan will generally be subject to UK tax on her worldwide income and gains. She will also remain subject to the US tax regime in respect of the same income and gains. This means that, if she becomes UK resident again, she will potentially face tax exposure in both America and the UK.

Although the US–UK income tax treaty and domestic foreign tax credit rules can often mitigate double taxation, they do not necessarily eliminate every mismatch. The interaction between the two systems can still create significant compliance burdens, timing differences and planning complexities. The administrative burden of filing in both jurisdictions and managing the interaction between the two very different tax regimes can therefore be significant. Some Americans decide to renounce their citizenship to leave the US citizenship-based tax regime, but this has its own consequences, which need careful consideration. Of course, whether Meghan would go as far as taking this step is unknown. Unless she does so, however, the complexities associated with US citizenship-based taxation are likely to remain relevant to her.

For wealthy Americans living abroad, cross-border tax planning becomes an important ongoing part of life.

For internationally mobile families, one of the recurring challenges is that different parts of the tax code operate over very different time horizons. The temporary non-residence rules look both backwards and forwards across periods of UK residence and non-residence, while the FIG and long-term residence regimes focus on longer periods of residence history. As a result, a move that appears sensible under one regime may produce a very different outcome under another.

The UK’s inheritance tax (IHT) system has also recently undergone fundamental changes. The UK’s IHT rules changed dramatically on 6 April, 2025. The long-established concept of domicile was largely replaced for IHT purposes by the concept of long-term residence (LTR). A person’s exposure to IHT now depends on whether they are a ‘long-term resident’ and on the ‘situs’ of their assets.

Under the new rules, an individual is generally LTR if they have been UK resident for at least ten of the previous twenty UK tax years immediately preceding the tax year in which the relevant chargeable event occurs; otherwise, they are non-LTR. If they are non-LTR, their non-UK assets will generally be outside the scope of UK IHT, although their UK assets will remain within scope. If they become LTR, their UK IHT exposure can expand significantly because their worldwide assets may come within the scope of UK inheritance tax. In practice, this means that internationally mobile US citizens may need to monitor carefully the number of years for which they have been UK resident if they wish to avoid becoming subject to UK IHT on their worldwide estates.

Harry may already satisfy the conditions for LTR status, although that would depend on his precise residence history. Based on publicly available information, Meghan may not yet have accumulated sufficient UK residence to be considered LTR.

This may create another potential issue. Normally, when a spouse dies leaving their estate to the surviving spouse, there is no IHT in the UK because of the spouse exemption. However, the spouse exemption can be restricted where the transferring spouse is LTR and the recipient spouse is not LTR. On that assumption, if Harry were to die leaving everything to Meghan while she remained non-LTR, the available spouse exemption could be limited to £325,000, potentially giving rise to a significant IHT liability. An election in a will may be available for Meghan to be treated as long-term resident (LTR) for IHT purposes, which could secure the full spouse exemption. However, this would also bring her worldwide estate within the scope of UK IHT.

Even if they were later to leave the UK and reside abroad, they would also need to be mindful of the LTR ‘tail’. An individual may continue to be treated as LTR, and therefore remain within the worldwide scope of UK IHT, for a number of tax years after ceasing UK residence. The length of the IHT tail depends on how long the LTR was UK resident in the previous twenty tax years. If they were UK resident for twenty years or more, the IHT tail is a maximum of ten tax years. The tail will be shorter for those who, before leaving the UK, were resident for fewer than twenty tax years.

For example, an individual who is UK resident for between ten and thirteen tax years will continue to be LTR for three tax years after ceasing UK residence. For each additional year of residence, up to the maximum ten-year period, the IHT tail increases by one tax year.

The practical impact of this IHT tail is that US citizens returning to the US, or leaving the UK to live elsewhere, may continue to be exposed to IHT in respect of non-UK assets during their tail period, both on death and in respect of certain lifetime transfers.

For Harry and Meghan, that means the longer they decide to remain living in Britain, the more relevant these rules may become to their future estate planning.

The Sussexes’ position highlights the reality for globally mobile families:

• timing can make a huge difference to taxoutcomes, particularly where residence-based regimes operate over different periods

• tax rules change constantly

• American citizenship adds an extra layer of complexity regardless of where you live

• personal and family decisions are often more important than tax planning, but overlooking the tax consequences can be costly

Whether by careful planning or pure coincidence, Harry and Meghan’s return to Britain after an extended period of non-UK residence may place them outside the scope of the UK’s temporary non-residence regime, depending on their precise residence history.

But the real financial impact remains unknown because it depends on transactions and other facts that are not publicly available.

What is certain is that a return to the UK means a return to the British tax system going forward and, for a transatlantic family like the Sussexes, navigating the tax consequences will remain anything but simple.