VZCZCXRO7576
PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHLO #0074/01 0090841
ZNR UUUUU ZZH
P 090841Z JAN 08
FM AMEMBASSY LONDON
TO RUEHC/SECSTATE WASHDC PRIORITY 6933
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 LONDON 000074 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD CASC UK EINV
SUBJECT: HMT STANDS FIRM ON NON-DOM TAX CHANGE 
 
REF: A) 07 LONDON 004659 B) 07 LONDON 004547 C)07 LONDON 
 
0004503 D)07 LONDON 004342 
 
¶1. THIS IS AN ACTION REQUEST. SEE PARA 08 
 
¶2. (SBU) Summary: HM Treasury (HMT) told us that the 
proposed non-domiciled tax changes will take effect in 
April 2008 as planned despite complaints from U.S. business 
and other groups. They say they have fully considered the 
concerns raised by British American Business (BAB)(Ref A), 
but will not extend the consultation period. However, HMT 
said that there is scope for adjusting the legislation to 
ease the pain of implementation for affected individuals. 
HMT will introduce the draft legislation in "about two 
weeks." HMT is also investigating how the proposed tax 
change might affect the pensions and incomes of middle 
class and lower income non-domiciled residents. HMT is very 
open to the idea of meetings with individuals and groups 
affected by the proposal for further discussions. HMT also 
briefed Staffdel Odintz on this issue. Post is seeking 
guidance and approval of its action plan. End Summary 
 
HMT NOT EXTENDING CONSULTATION PERIOD 
------------------------------------- 
 
¶3. (SBU) On January 7, 2008, Steven Effingham of HMT's 
International Direct Personal Tax Team told EconOff that 
HMT will almost certainly implement the proposed changes to 
the tax laws for non-domiciled residents of the UK in April 
as laid out in the pre-budget report and consultation 
paper. He said an extension of the consultation period is 
very unlikely (Ref B). (Note:  Currently non-domiciled 
residents of the UK do not pay UK income tax on their 
foreign earned, unremitted income. The proposed change 
would require non-domiciled individuals, who are resident 
in the UK seven of ten years, to pay UK income tax on their 
entire worldwide income or pay a 30,000 GBP ($60,000) 
charge in addition to the taxes on their UK income. (Ref D) 
Effingham said that Chancellor Darling wishes to finalize 
this issue in hopes of removing any uncertainty about it. 
End Note) Effingham said that the favorable tax status for 
non-domiciled individuals has been under review by HMT 
since 2002. He said the issue is an "easy target" for the 
press, trade unions, and other individuals who wish to make 
an example of HMT's unfair taxation policies. To assist in 
the consultation process, HMT will introduce the draft 
legislation in "about two weeks." The consultation period 
will end on February 28, 2008. The law, which may not be 
enacted until Summer 2008, will nonetheless be effective 
from April 2008. 
 
¶4. (SBU) Effingham said that HMT has carefully reviewed 
BAB's concerns raised in their recent letter to the 
Chancellor. (Ref A) He said that HMT understands that the 
changes will increase the UK tax burden for a number of 
long-term resident American citizens. However, he says that 
the substantial UK public support for removing tax 
advantages for non-domiciled residents outweighs concerns 
that these individuals might choose to leave the UK. 
Effingham reiterated the consultation paper's survey data 
which suggest that the vast majority of individuals 
seconded to the UK for a temporary assignment reside in the 
country for less than five years and will not be affected. 
Effingham said that for these reasons, HMT expects this 
proposal will not have a great impact on U.S. investment in 
the UK, attractiveness of seconding U.S. employees to the 
UK, nor will it render the UK an unattractive location for 
headquarters operations. 
 
HMT SEEKS USG INPUT 
------------------- 
 
¶5. (SBU) Effingham said that HMT is very open to 
suggestions on how changes to the draft legislation might 
be altered to minimize unnecessary hardship for American 
citizens. He said that HMT is open to suggestions for the 
terminology used to describe the 30,000 GBP charge. He said 
that if U.S. Treasury had a suggestion for a term which 
might make it easier for Amcits to deduct the charge from 
their U.S. tax liability, HMT would seriously consider it. 
Effingham also said that HMT could possibly consider 
drafting the legislation so that Amcits could submit their 
financial data in calendar year format instead of the 
fiscal year format currently required. He said HMT 
understands this causes extra hassle and costs to tax 
compliance for not only Americans, but citizens of many 
other countries. Effingham said that after the draft 
legislation is introduced in two weeks, it will be easier 
for individuals to make constructive suggestions. 
 
 
LONDON 00000074  002 OF 002 
 
 
¶6. (SBU) HMT is also investigating how the proposed tax 
changes might affect the retirement pensions and other tax 
deferred retirement schemes. Effingham said that the 
legislation was not intended to overly burden middle and 
lower income non-domiciled residents. He said that HMT 
welcomes examples of how Amcits' tax deferred savings plans 
might be affected. He says they will study any examples and 
hope that the U.S. - UK Double Taxation Convention will 
prevent any individual from suffering undue hardship. HMT's 
goal was to ensure that long-term UK residents "pay their 
fair share," but not to wipe out anyone's savings or 
retirement plans. Amcits have previously told us that they 
are concerned that Independent Retirement Accounts (IRA's) 
and Roth IRA's could be especially impacted by the proposed 
tax changes. A tax expert at Deloitte and Touche told us 
that these retirement accounts would probably be covered 
under the Double Taxation Convention, and individuals might 
have to pay the higher UK tax rate, but nothing else. Post 
is trying to corroborate this. 
 
¶7. (SBU) Effingham said that HMT would be very willing to 
discuss this issue with any groups or individuals the 
Embassy suggests. He believes many expatriates have heard 
untrue rumors and are unnecessarily panicking. Effingham 
said that he would be happy to participate in an Embassy 
outreach to resident Amcits. This outreach would allow 
Amcits to voice their concerns directly to HMT and also 
allow HMT to dispel myths and rumors. He suggested timing 
such an event after the publication of the draft 
legislation, but before it takes effect in April. 
 
ACTION REQUEST 
-------------- 
 
¶8. (SBU) Given the UK's offer to discuss the issue and take 
into account U.S. concerns, post seeks assistance of USG 
tax experts to engage with HMG and simultaneously 
demonstrate USG support for American taxpayers resident in 
the UK. 
 
---Post recommends the scheduled review of the U.S. - UK 
Double Taxation Convention take place before February 28, 
¶2008.  A meeting in February would give HMT sufficient time 
to alter draft legislation before its April implementation. 
Please advise ASAP whether U.S. Treasury officials would be 
available on that schedule. 
 
---Post would like to hold a town hall meeting for resident 
Amcits on the non-domiciled tax changes. Post plans to 
invite HMT officials, USG tax experts, and private industry 
experts to address and answer questions from interested 
American expatriates. Post requests attendance by U.S. 
Department of Treasury tax policy officials. Failing that, 
post requests U.S. Treasury attendance via DVC. The town 
hall would ideally be timed to coincide with the review of 
the Double Taxation Convention. 
 
---Post will continue raising the concerns of BAB and other 
American citizens with HMT as outlined in Ref A. 
 
LEBARON