Internal Revenue Services Decision a Welcome Development – KPMG

Michelle Remo, “Big 4″ observer
August 14, 2011 /

The Internal Revenue Service’s (IRS) decision confirming that US taxpayers can claim credit for the remittance basis charge “will be welcomed by the many American non-doms living and working in the UK.”

This was according to Dan Crowther, director in the private client advisory practice at KPMG in the UK. Crowther said the Internal Revenue’s decision (Revenue Ruling 2011-19) should eliminate the risk run by American non-doms living and working in the UK who are being taxed twice on the same income.

Under the IRS ruling, non-dom US tax payers who are resident in the UK and choose to pay tax on the so-called “remittance basis” can set the annual £30,000 levied by the UK tax authorities for doing so against their US tax bills.

According to the Treasury’s consultation document on the taxation of non-domiciles, around 5,400 individuals paid the remittance change in 2008 / 09. A significant proportion of these are likely to have been US taxpayers.

“In 2008 an annual charge of £30,000 was introduced for non-domiciles who make a claim to be taxed on the remittance basis in a tax year and have been resident in at least seven of the nine tax years prior to the year of claim…known as the Remittance Basis Charge (RBC),” HM Treasury noted.

The Treasury proposed that the £30,000 annual remittance basis charge will be increased to £50,000 for longer term residents from 6 April 2012. It is understood that the £50,000 will also be creditable.

According to the Treasury, the government “thinks it is right that non-domiciles who have been in the UK for more than a short period should pay an annual charge if they wish to retain access to the beneficial tax regime.”

The UK government believes that those who have been in the country the longest, enjoying the benefits offered by the UK’s economy and society, “should make a greater contribution than the current £30,000 charge to reflect their closer connection to the UK.”

“By bringing the tax treatment of domiciled and non-domiciled individuals closer, the rules will be made fairer,” the Treasury said.

However, there are some exceptions. Resident non-domiciles with unremitted overseas income and capital gains of less than £2,000 arising or accruing in the tax year are automatically taxed on the remittance basis and are not liable to pay the RBC.

Individuals under the age of 18 are also exempt from the charge, according to the Treasury.


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