London mayor bows to 'outrageous' demand to pay US tax bill

Boris Johnson has finally agreed to pay an unsettled capital gains tax bill to the US government, in spite of previously insisting he would not bow to the "absolutely outrageous" demand.

The London mayor, who was born in New York and holds a US as well as a British passport, decided to pay the outstanding bill ahead of a visit to Boston, New York and Washington next month.

Allies joke that there is now no question of him being "detained by the Internal Revenue Service at JFK airport" while his spokesman said simply: "The matter has been dealt with."

Mr Johnson has refused to say how much capital gains tax he owes the US from the sale of his first family home in north London, but his allies say it is "nowhere near" the £100,000 estimated by some tax experts.

Mr Johnson has previously said he wanted to renounce his American citizenship but that it was "very difficult to give up".

The clearance of his debt to the US government should remove the major obstacle to him renouncing his American passport, but his spokesman refused to comment on whether he would now do it.

Mr Johnson's decision to pay up was taken grudgingly but will ensure that his visit to the US - intended to drum up investment for London - is not dogged by questions about his tax affairs.

All US citizens, including those with dual citizenship, are legally obliged to file a tax return and pay US taxes wherever they are living. Capital gains tax on the sale of a primary residence is not applied by UK tax authorities, but is levied in the US.

Mr Johnson's troubled relationship with the land of his birth emerged last November on a tour of the US to promote his new biography of Winston Churchill, when he revealed he had been hit with a demand for capital gains tax.

Asked whether he would pay it, he said: "No is the answer. I think it's absolutely outrageous. Why should I? I haven't lived in the United States since I was five-years-old. I pay my taxes in full in the United Kingdom, where I live and work."

Mr Johnson used to live in Furlong Road, Islington, according to election filings. Land Registry records show the house was bought for £470,000 ($764,690) in March 1999 and sold for £1.2m ($1.85m) in May 2009.

Assuming Mr Johnson owned half the property, with his wife owning the other half, he would face a US tax bill of just under $44,000 - about £29,000 - on his gain of $542,855.

US expats whose spouses are not American are often advised to cut their US tax bills by making their spouse the owner of the property they may ultimately sell. But the shock expressed by Mr Johnson last year when he learnt he was liable for US tax suggested he had not planned for the liability.

The first $250,000 of the gain would be exempt, under a tax break for homeowners introduced by President Bill Clinton in 1997, according to David Treitel managing director of American Tax Returns, a UK-based tax firm. A gain made in 2009 would be taxed at 15 per cent as the capital gains tax rate was only increased to 20 per cent last year.

Mr Johnson's predicament has brought wry smiles at the US embassy in London; the London mayor is pursuing the embassy for £8m in unpaid congestion charges levied on the capital's motorists.

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