Sunday, February 10, 2008

“Non-Dom” tax creates waves

Source: US unease at UK tax clampdown

The US and UK are at odds over a tax clampdown that will adversely affect many wealthy non-domiciled foreigners living in Britain. This tax threatens to hit Americans particularly hard, forcing them to pay up to £30,000 in taxes.

In its present form, the UK tax is not a valid write off under the US tax system. This means that Americans working in the UK will incur a double tax on their income. The fear if the UK refuses to compromise on the impending tax, the added financial burden will result in a dram of talent from the City to other jurisdictions, compromising London’s reputation as an international center of finance. Richard LeBaron, chargé d’affaires for the US embassy in London stated that “The embassy has been consulting widely and hearing the concerns of American companies and taxpayers in the UK. We are communicating those concerns to HM Treasury and others in the UK government as part of our regular dialogue with them.

However, the Treasury continues to resist pressure to respond to the US concerns. It is the opinion of the Treasury that the implications of the UK tax changes on US taxpayers is a matter for the US authorities.

The exact details of the regime remain unsettled. The Treasury is still considering plans that would charge foreigners £30,000 a year who live in Britain for more than seven and wish to keep their foreign income out of the British tax system. The government also intends to close loopholes which allow wealthy individuals to escape capital tax on UK assets in offshore trusts. Decisions on these changes will not be settled until the Budget meeting on March 12. This leaves only 18 working days before the proposed changes will take effect. The uncertainty is creating chaos for tax advisiers. Mike Warburton, senior tax partner at Grant Thornton said that it was “quite extraordinary” that changes were not yet finalized, adding that “this is not the way to run a modern economy.”

Questions for Discussion
1. Are these proposed changes likely to dissuade foreign companies from establishing offices in London?

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