New London Tax Law Could Be Boost for New York

The cost for foreigners working in London is on the verge of becoming vastly more expensive, an event that some say will be a boost for New York in its battle with London for the title of world financial capital.

In a little more than a month the United Kingdom will end its practice of providing tax relief to foreign workers — a large portion of which work in the financial services sector. Within the present tax structure, these "non-domiciles" pay no tax in Britain on their overseas earnings. But starting in April non-domiciles that have lived for more than seven years in the United Kingdom will be forced to pay an annual tax of £30,000, or roughly $60,000.

The law change is causing consternation in the British business community, as a number of experts are predicting the new law would trigger an exodus out of London, which in recent years has encroached on New York as the financial services capital of the world. Some reports estimate that about 40% of all investment bankers working in London are non-domiciles, which is tens of thousands of people.

The general feeling is that the changes to the British tax structure would bode well for other financial centers, including New York City.

"The combination of the new law and the cheap dollar could enable New York to convince a number of Londoners to come to New York," the director for the Center for an Urban Future, Jonathan Bowles said.

But Mr. Bowles was quick to note that it would not be because of New York's tax structure, which he said is relatively expensive.

"I don't know if New York is going to win any battles on taxes or cost structure. It will be the other things that make New York attractive, the culture, the vitality of the city, the proximity to all sorts of captains of industry," he said. Some observers are skeptical that tax-sensitive professionals would flock to New York City, which has some of the highest taxes and costs around the globe.

The chairman of the London-based Corporate Tax Committee for the Chartered Institute of Taxation, John Cullinane, said he thinks that likely beneficiaries are smaller, up-and-coming financial service centers such as Dubai, Singapore, and Hong Kong.

A vice president of the Partnership for New York, Diana Torres, said the law change would be unlikely to benefit New York, which has higher taxes than other international cities.

"It doesn't particularly affect us either way," Ms. Torres said. "It may drive some of the super rich out of London, but not necessarily to New York — rather to other destinations. The global mobility of capital is no longer a New York-London conversation."

Whether the new law ultimately has a beneficial effect on New York, or other American cities, may hinge on ongoing discussions between the British and American governments. They are currently deciding whether the new £30,000 levy can to be used as an offset against American taxes.

In a statement a spokesman for the U.S. Department of Treasury said the department is, "carefully monitoring the United Kingdom's proposed legislative changes to the U.K. tax rules for non-domiciled residents. Treasury is not in a position, however, to make a decision as to the creditability of this proposed new law until it has been finalized."