The Duchess of Sussex could be barred from re-entering the US in the future if she chooses to renounce her citizenship.
The US government has started enforcing provisions of 1986 legislation allowing the country to exclude tax “refugees”.
The rule targets Americans who drop their citizenship to avoid paying US tax on earnings they make overseas.
According to figures released by the State Department, a small number of former Americans have already been barred from re-entering the US.
Although she is likely to retain dual citizenship, the move could present a dilemma for the Duchess of Sussex and her son Archie if they choose to become solely British citizens.
Boris Johnson, who was born in New York, is among the most notable British citizens to have renounced their US citizenship.
A spokesman for the State Department confirmed that renouncing US citizenship for tax purposes were grounds for denying re-entry.
The United States is one of two countries which taxes its citizens irrespective of where they live. The other, according to the Tax Foundation, is Eritrea.
Anybody born in the United States is classified as a US citizen until they renounce their nationality. This has created a cohort of “accidental Americans” who have been burdened with tax liabilities even if they left the country shortly after they were born.
With the US government allowing Americans to offset tax paid locally, only a minority faced demands for additional income tax.
The biggest financial blow, however, is when an American sells a home. The profit is taxable and treated separately from other income.
One victim was Mr Johnson, who paid a substantial tax bill on the profit he made on the sale of his home in London – something which is not taxed in the UK.
Mr Johnson was among 5,411 individuals to renounce their nationality in 2016, a new record for renunciants. Mr Johnson, who left the US at the age of five, described the tax demand as outrageous in 2014. “I pay the lion’s share of my tax, I pay my taxes to the full in the United Kingdom where I live and work.”
There have been some high-profile cases of Americans renouncing their nationality. John Dorrance III, the heir to the Campbell’s soup empire, gave up his US citizenship prior to selling his stake in the business. Eduardo Saverin, the co-founder of Facebook, renounced his citizenship before the company’s stock market launch.
Despite the tax-saving temptations, the Duchess of Sussex is likely to retain dual citizenship to honour her American roots, which would also be in keeping with the Duke and Duchess’s affinity for the US.
The Duke and Duchess are already building links between the Royal Family and its American admirers, with forthcoming podcast series with Oprah, the Duke’s attendance at a baseball game on Saturday and a new charitable foundation expected to have a significant working relationship across the pond.
The Duchess still receives an income from the US in the form of royalties from her acting career. Meanwhile, baby Archie, who has automatic dual British-US citizenship, may be passed a portion of the inheritance from Diana Princess of Wales.
Paul Miller, the owner of New York-based accountancy firm Miller & Company, questioned whether the US tax man would grant the child an exemption because of his royal status. “I highly doubt they would agree to that,” said Mr Miller. “The US government is greatly in debt. They want every penny they can get.”
The 1986 provision was used for the first time twice in 2016 and again in 2018. Experts believe that this number could increase.
“This is a change in that for decades, tax and immigration lawyers have been saying, yes, there is this ground of inadmissibility but it has never been used,” said Anastasia Tonello, a New York attorney. “That is not the case anymore since it has been used at least three times.”
According to the latest figures, 1019 people gave up their US nationality in the first quarter of 2019. “Renunciants” also face a $2,350 (£1,850) exit tax. Wealthier former citizens with substantial assets can be hit with a far higher bill.