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Royal engagement romantic ring gesture could produce big capital gains tax bill

The world is abuzz over the upcoming wedding of England's Prince William and Kate Middleton.

Prince-william-kate-middleton-sapphire-engagement-ringBut while most romantics are simply focusing on pedestrian issues such as when and where the big event will occur -- we might find out today whether vows will be exchanged in April or July and if the ceremony will be at Westminster Abbey! -- tax geeks are pondering the implications of William's grand engagement ring gesture.

The young prince gave his betrothed the sapphire and diamond ring that his father, Prince Charles, gave to his mother, Princess Diana, upon their engagement in 1981. William inherited the ring from his late mother.

But according to British tax law, William's gift could end up costing him £28,000, or $44,667 in U.S. dollars.

"If it is was worth about £150,000 for probate and about £250,000 now, Prince William could be facing a £28,000 capital gains tax bill, which would be payable in January 2012," Mike Truman, editor of Taxation Magazine, told the Express newspaper.

In case you're an American reader and are a bit confused, that's because the laws for British capital gains taxes and U.S. capital gains taxes are different.

In the United States, you generally have to sell something at a profit to face capital gains taxes. In Great Britain, however, taxpayers are subject to that country's capital gains taxes when they sell or "dispose of" an asset.

And disposing of an asset under British tax law includes not only selling an item that has increased in value, but also giving it away as a gift or transferring it to someone else.

Thanks a lot, HM Revenue & Customs, for being such royal wedding buzz killers!

Of course, said Truman, William could avoid the 28 percent British capital gains tax by making the gift of the ring conditional on he and Kate actually saying "I do."

If they don't go through with the nuptials and Kate returns the ring to William, then the U.K. capital gains tax bill would simply go away, along with the romantic dreams of lovers of young lovers everywhere.

Hat tip: taxgirl

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