Foreign Banks Cautious Of UK Tax Changes

by Jason Gorringe, Tax-News.com, London

14 January 2008

Recent tax proposals put forward by the UK government are likely to make foreign banks think twice about locating in the UK, the Association of Foreign Banks has warned this week.

According to a Financial Times report on Monday, the managing director of the AFB, John Treadwell, warned that Britain needs to be careful about sending 'unfriendly' messages to foreign banks.

Mr. Treadwell told the business daily that:

"The government is in danger of going down this route with its recent announcements on, for example, offshore accounts, proposed taxation changes for non-domiciled residents, changes to residency rules and the new work permit system."

Several recent moves have caused concern amongst the UK's banking and finance sector, including the announcement in July 2007 that HMRC would seek new powers to reduce the cost and effort of chasing 200,000 people who haven't paid all of their tax through the courts each year.

A consultation paper looking at payments and debts published at the time stated that : "Taxpayers who owe money to HMRC frequently have sufficient funds or assets to pay their debts, but choose to delay doing so. HMRC currently lacks the full range of powers to ensure prompt payment."

The proposals, if approved, would allow HMRC to freeze an amount held in an individuals's bank account equal to their tax debt. This would be paid to the department by the bank or building society in question only after other methods of collecting the money had failed.

The UK government also last year announced planned changes to the tax treatment of so-called 'non-doms', who are resident in the UK, but not domiciled for tax purposes, and have therefore traditionally benefitted from a more attractive tax regime.

The change means that UK residents who are non-domiciled, will have to pay an annual charge of GBP30,000 to ensure that they contribute in respect of the foreign income and gains which they keep abroad and on which they do not pay UK tax.

The charge will apply if they’ve been resident for more than 7 years. Users of the remittance basis will also lose their tax free personal allowances.

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