New UK tax law affects Americans living in UK.

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By Liz Zitzow - The gist of the new tax is that anyone who is not "domiciled" in the UK and has lived in the UK for more than seven years will face either a £30,000 ($60,000) fee to avoid worldwide taxation or a voluntary inclusion of their worldwide income on their income tax return.

It may seem simple enough, but since the payment of tax becomes voluntary, and the only other option is something called a "fee" rather than a "tax", a huge debate is raging between the UK's government and the US's IRS as to whether or not this is a tax for purposes of taking tax credits under the treaty.

The obvious answer is to become tax resident in some third country. I'm expecting a goodly number of my clients will arrange to become tax-resident somewhere that has a solid tax treaty with the UK. Mind you, they can still enter and exit the UK as much as they like - even exceeding the UK's 90 days conferring residency rule - providing it's a solid treaty situation. Then Bob's your uncle; the UK loses some trillion pounds in tax all for the want to collecting an extra £250 million.

The word in this week's Economist is that faced with trillions of pounds of lost other taxes (the annual amount of VAT, income tax, and stamp duty paid by nondoms is in the billions), it would be fiscal suicide for the government to continue with the proposal in its current state. The Economist also predicted Alistair Darling would likely lose face if not his office over this fiasco.

In the meantime, my phone rings off the hook with people who are curious about the implications of this new tax.

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