Over the weekend, Aaron Rai became the first English golfer to win the US PGA Championship since 1919, taking home more than $3.6 million, but the tax implications are far less straightforward than the headline figure suggests. Sean Cockburn, private client tax partner at Forvis Mazars, outlines how the final tax bill will depend on where a golfer is tax resident, with US federal and state taxes applying first and further liabilities potentially arising elsewhere.
Sean Cockburn, Private Client Tax Partner at Forvis Mazars comments: “Professional golfers are generally taxed on prize money in the country in which the tournament is played but they will also need to consider the tax position in the country in which they are tax resident, although some countries, like the US, extend their taxing rights to citizens or Greencard Holders.
“As the US PGA Championship takes place in the US, the prize money earned by the golfers will be subject to US federal tax, the top rate of which is still 37%. As this year’s tournament was held in Pennsylvania, state tax will also need to be considered. US tax will be payable on all prize money won from the tournament, regardless of where they are tax resident. If the golfer is solely resident in the US, they are unlikely to pay tax in any other country on their prize money from the US PGA Championship. For Aaron Rai, the first English golfer to win the US PGA Championship since 1919, the tax implications may be more complex.
“Although originally born and raised in Wolverhampton, England Aaron maintains a primary residence in Jacksonville, Florida, and spends the majority of the year there. If he has ceased to be a UK resident, his UK tax exposure would be limited to UK source income only, so his prizemoney from the Championship would not be subject to UK tax. However, if he was also UK resident, he would need to consider his income tax position in the UK. Where a golfer is tax resident in the UK, they are subject to UK income tax on their worldwide income. Therefore, assuming they are an additional rate taxpayer, they would pay UK tax at 45% (or 48% if resident in Scotland) on the prize money they make from the tournament. They would then need to consider the terms of the Double Tax Agreement between the UK and US, which will give the primary taxing rights over the prize money to the US as this is where the activities are performed. They will therefore be able to claim foreign tax credit relief for the US tax against their UK tax liability.
“For example, if the winner is UK tax resident, based on prize money of $3.6m, the UK tax liability on this at 45% would be $1.62m. They should be able to claim credit for the US federal and state taxes paid, reducing the amount payable to HMRC. If a golfer is tax resident in the Middle East, they will still have to pay the US tax on the prize money as this is where the tournament is being held. However, many countries in the Middle East like the UAE and Saudi Arabia, do not have local income taxes and therefore, golfers solely resident in these countries are unlikely to have to pay any further tax in their home country on the prize money.
“Therefore, the golfers that will pay the most income tax will be those who are tax resident in the jurisdiction with the highest income tax rates. This could be European countries like Denmark, Austria or Belgium that all have top rates of income tax of 50% or more. The above considers the tax position on the prize money they make at the US PGA Championship, but it’s worth noting that the golfers are also likely to be subject to tax on their endorsement and sponsorship income. The rules on the taxation of this varies from country to country.”
