The Wall Street Journal-20080212-Politics - Economics- U-K- Relents On Tax Plan For Foreigners

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Politics & Economics: U.K. Relents On Tax Plan For Foreigners

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LONDON -- The United Kingdom Treasury has backed off its plans to tax wealthy foreigners living in the U.K. on gains on assets they hold in offshore trusts, a person familiar with the matter said.

But the government is sticking by its intention to tax so-called nondomiciles a flat rate of GBP 30,000 a year (more than $58,000 at the current exchange rate) after they have lived in the U.K. for seven years, this person said.

For years, London has attracted ultrawealthy foreigners who reside in the U.K. but claim their tax domicile elsewhere because they can pay tax only on the money they bring into, or earn in, Britain, and keep most of their assets offshore where the U.K. doesn't tax them. Money brought into the U.K. from payments made from capital gains on stocks, property and other assets held via offshore trusts wasn't taxed. The U.S. taxes residents on their world-wide income.

Last October, the U.K. Treasury proposed changing the nondomicile, or "non-dom," tax policy. This month it has been hearing feedback, and wealthy people as well as the industries serving them have mobilized against the changes. The government is now writing to participants in its consultation for the proposed tax change to clarify its position and that is why its change on trusts is coming out now.

The proposed rules will also be tweaked to make sure foreigners donating art work to British galleries and museums won't be taxed for their donations, the person familiar with the matter said.

The new rules are expected to take effect in April.