Prince Harry and Meghan Markle's potential tax nightmare

The Royal Family is facing a possible tax nightmare, with reports US officials are examining if Prince Harry and Meghan Markle owe them money.

The Duchess of Sussex is still an American citizen, which means she still pays tax in the US for her own personal fortune, reportedly $9.2 million. A large part of that fortune was earned while working on the television drama Suits.

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The issue is, she now draws a joint income with her royal husband.

Meghan, 37, has married into one of the world's richest royal families. Royal commentator Marlene Koenig explained the situation to the Times.

"She will continue to pay US income tax on her income even after marrying Prince Harry, as the US is one of two countries that taxes expats," she said.

"She cannot start the process of becoming a UK citizen until she is married three years, and when she has acquired British citizenship, she will need to make a decision on whether or not she renounces her US citizenship."

Prince Harry's main source of private wealth comes from a trust fund on which he pays income tax in the UK. As a royal spouse, Meghan won't receive a regular income, however her expenses are covered and, as we saw on the recent royal tour, she receives plenty of gifts.

The Duke and Duchess of Sussex have their expenses covered by the Duchy of Cornwall, the private estate managed by Prince Charles. This includes all expenses related to all official royal business including wardrobe, travel, housing and staff costs.

Prince Harry is estimated to be worth around $53 million, $13 million of that inherited from his late mother Diana.

It's not just Meghan's tax commitments to the US being examined, but also those of Prince Harry and by association Prince Charles, as he manages the estate that finances the royal couple's duties.

"We're looking at a level of financial exposure the Royal Family has never had to face before," a royal aid tells the Sunday Express. 

There are also suggestions the examination may extend to the Queen.

Meghan is reportedly living in the UK on a family visa, which makes her tax status complicated as long as she remains a US citizen.

The Duchess still has to file tax returns, the last one due on April 17 which would have had to include any money she and Harry have made since living together.

Next April, her tax return will have to include full details of her finances including any joint assets, bank accounts or offshore trusts.

Perks will also come under scrutiny, including use of Nottingham Cottage, Kensington Palace where she and Harry reside, and any residual TV income resulting from her previous career as an actress.

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

Her engagement ring could be deemed a gift 'from a foreign person' which would make it subject to taxes.