Budget letter attempts to lift non-dom blues

Unusually, this year’s Budget report and financial statement document was
shorter than the supplementary Budget notes by some 60 pages.

One of the reasons for the lengthy Budget notes pack was a peculiar 16-page
letter from the largest law firm in the US ­ Skadden, Arps, Slate, Meagher
& Flom.

The letter laid out the firm’s view that the £30,000 levy on non-doms, who
have been in the UK for seven years or more and want to keep foreign income free
of UK tax, should be treated as ‘a foreign tax creditable against United States
federal income tax’.

The decision to include the letter along with the Budget notes was seen as a
desperate attempt to reassure the thousands of US non-doms living in the UK that
they would receive relief from the US Internal Revenue Service for the £30,000

When the non-dom levy was first announced by Alistair Darling in the 2007
pre-Budget report, US workers, who already pay tax on worldwide income, raised
immediate fears that they would have to pay the levy without being able to
offset it against tax paid to the US, resulting in double taxation.

At the time, top UK tax barristers said it was unlikely that the US would
offer relief against the £30,000 levy as it was a flat charge and unrelated to
income as defined by US tax authorities.

Before the Budget UK officials from the Treasury and HM Revenue &
Customs held a series of frantic negotiations with their US counterparts in an
effort to convince them that the UK levy should be creditable.

No resolution was reached before the Budget, and although the view from a
heavyweight law firm that the levy is creditable will be of some comfort to US
non-doms, the US Treasury and IRS have yet to reach a conclusion.

‘We expect that the United States Treasury and IRS will in due course provide
authoritative guidance on some or all of the issues analysed above,’ the Skadden
letter said.

US non-doms will be feeling better after the Budget, but their double
taxation worries can’t be forgotten just yet.

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