The annual £30,000 (around $48,900) levy on non-domiciled residents in the UK can be credited by US expats against their US tax bills, a move that makes the UK more attractive to this population group, notes Withers, the global law firm.

The US Internal Revenue Service has ruled that the annual levy introduced by the previous Labour Party-led UK government three years ago can be offset against any tax bills that have to be paid to the IRS.

US citizens, unlike most nationalities, pay tax on their worldwide income to the IRS regardless of where they live. Since non-doms must pay the levy if they have been living in the UK for at least seven years and do not want to pay tax on worldwide income, US expats had faced a double tax “hit,” as it had not been clear if the levy could be offset against US tax bills. However, the new ruling ends that fear, Withers said.

“After three years of uncertainty, Revenue Ruling 2011-19 now provides US taxpayers with the assurance that if they choose to pay this charge it will be included in their foreign tax credit calculation,” Withers said in a briefing note.

If US expats could not offset the levy against IRS bills, it could drive such people out of the UK, it had been feared.

“It is now much more attractive for US taxpayers to remain on the remittance basis, as US taxpayers who are resident but not domiciled in the UK can take advantage of the rate differential on capital gains and qualified dividend income between the US and UK tax systems,” Withers said.

“This [ruling] will provide very practical relief for US taxpayers investing in non-UK collective investment schemes such as US mutual funds, the taxation of which in the UK can be subject to a penalty regime,” it said.