City banks hit by non-dom chaos

City banks may have to spend millions to beef up salaries paid to US
employees because of the UK’s introduction of a £30,000 levy on non-domiciled

The prospect of making up the difference on non-doms’ salaries was more
likely this week, after draft guidance on the rules gave little hope that the
new £30,000 fee will be ‘creditable’ against US tax.

‘Although the draft legislation states that the remittance basis charge is to
be accounted for as if it were income tax, this is unlikely to be sufficient for
the IRS given that it is not similar to US income tax, nor can it be said to be
excess profits tax,’ said Gray’s Inn Tax Chambers barrister Patrick Way.

The situation means global banks and other City employers may have to pay
around £50,000 extra to each of their US staff to prevent the tax position of
these workers from being adversely affected by the non-dom changes, in line with
typical tax equalisation agreements.

The proposals, which advisers say are a mess, have also confirmed non-doms
will forfeit personal allowances.

‘It seems that any non-doms coming to the UK will lose all personal tax
allowances from day one. It seems totally unfair. The reach of these rules has
been far larger than anticipated,’ said PricewaterhouseCoopers tax partner John

Criticism of the non-dom plans is gathering pace, just as the chancellor
Alistair Darling also prepares to announce his final plans for capital gains tax
today. Proposals for the tax have already caused controversy.

Such is the complexity of the non-dom legislation and the confusion caused by
it being rushed through in time for the budget, advisers have called on the
Treasury to delay the changes.

Fears have also been raised that the Byzantine rules will be open to
widespread avoidance.

The regime was announced in the 2007 pre-Budget report, where it first
emerged that the UK would be clamping down on the privileged tax status, which
allowed non-doms to keep income and capital gains earned off-shore tax free.

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