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US Taxpayers May Credit UK Non-Dom Levy

September 2011 - Tax & Private Client. Legal Developments by Hassans.

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The Internal Revenue Service (IRS) has decided that US taxpayers resident in the UK can now offset the UK non-dom levy against their US tax bill.

As the IRS's Revenue Ruling 2011-19 states, UK non-doms are able to elect each year to be taxed on an alternative basis. This "remittance basis" permits non-doms with non-UK source income or gains to elect to be taxed on such income and gains only when they are remitted to the UK. These taxpayers are also subject to tax on their UK source income and gains, taxed in the year in which they arise.

As the Ruling goes on to explain, a special condition applies to non-doms who were UK residents in at least seven of the previous nine taxable years. Any such long-term non-dom electing for the remittance basis is required to pay a Remittance Basis Charge (RBC) of GBP30,000 in addition to the remittance basis tax.

US law generally allows a credit for the amount of income tax paid or accrued during the taxable year to any foreign country. The Ruling classifies the RBC as an income tax for which a credit is allowable.

Commenting on the decision, Dan Crowther, director in the private client advisory practice at KPMG in the UK, said: ?This decision by the IRS will be welcomed by the many American non-doms living and working in the UK. Because the US has a system of worldwide taxation, these people were running a risk of effectively being taxed twice on the same income. This sensible and pragmatic ruling should eliminate that situation.?

The UK's 2011 Budget included an an increase in the charge for non-domiciles living in the UK from GBP30,000 for those having resided in the country for seven years, to GBP50,000 for those with 12 years residence. The changes will come into force in April, 2012. KPMG understands that the GBP50,000 will also be creditable in the US.


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