US Non-Doms Living In UK Still Face Tax Bill Uncertainty - Accountants

Tom Burroughes

18 March 2009

There is still uncertainty over whether US citizens living as non-domiciled residents in the UK can offset the recently introduced UK annual £30,000 (around $42,000) charge on non-doms against any US tax bills, according to accountancy firm UHY Hacker Young.

The US Internal Revenue Service has still to confirm whether the annual levy – imposed last April by the UK government – can be used by US nationals as an offset against any taxes they pay to the US. Unless such an offset can be made, it is feared that US non-doms could be driven out of the UK because of high tax bills.

So far, the UK Treasury department of the government has significantly changed new rules for non-domiciled UK residents to try and ensure Americans are able to set the charge off against their US tax bill, UHY Hacker Young says.

The accountancy firm is raising the issue as the UK and the US are both nearing the end of the 2008-09 financial year, with many US citizens, even if they live abroad, undergoing their annual ordeal of filing tax returns. The US taxes people on a "worldwide basis", which means even expat US citizens have to file returns to the IRS, in contrast to most other jurisdictions.

“Extensive changes to the rules have been ushered in by the UK Treasury in an attempt to persuade the IRS that the £30,000 levy is a tax and to alleviate the fears of Americans working in the UK that they will be taxed twice. However, this has meant that the rules affecting all non-doms in the UK are now far more complex than those originally proposed by the government,” said Jeremy Herridge, Partner at UHY Hacker Young.

The IRS did not immediately respond to WealthBriefing’s calls and emails on the matter.

“Despite this, clarification from the IRS is still not forthcoming, raising the possibility that the introduction of these additional complications may have been futile,” he said.

“If the IRS refuse to treat the £30,000 levy as a tax this could have a dramatic impact on US workers’ net incomes and their decision to continue working in the UK,” he added.

Before last April, non-domiciled UK residents were only taxed on non-UK income and gains that they brought into the UK. However, non-doms who have been UK residents for seven or more of the last nine years will now need to pay a “remittance basis charge” of £30,000 for each tax year in which they wish to avoid paying tax on their overseas income.