Termination payments: foreign service

Finance (No. 2) Bill – in a Public Bill Committee am 10:45 am ar 9 Ionawr 2018.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Question proposed, That the clause stand part of the Bill.

Photo of Mel Stride Mel Stride Financial Secretary to the Treasury and Paymaster General

Clause 10 ensures that all employees who are UK-resident in the tax year in which their employment is terminated will be liable to income tax on their termination payment in the same way, regardless of whether they have worked abroad. Foreign service relief allows termination payments for certain qualifying individuals to be completely exempt from income tax. Employees who receive termination payments while working in the UK may be eligible for a 100% reduction in income tax on this payment if they have worked abroad for a qualifying period. An employee has to meet certain qualifying criteria; these include the foreign service covering three quarters or more of the employee’s period of employment with an employer. Employees may also be able to receive a smaller relief proportionate to their time worked outside the UK for that employer.

Around 1,000 individuals claim foreign service relief each year. However, this relief has become outdated and it is unfair that some UK residents may receive tax relief simply because they have worked abroad. Today there is a global workforce, and this exceptional treatment is no longer justifiable.

The changes made by clause 10 will ensure that those who are resident in the UK in the year their employment is terminated will be taxed in the same way, whether or not they have worked outside the UK. The statutory residence test will be used to determine which employees are UK-resident in the tax year in which they receive their termination award. These changes will apply to those individuals who have their contract terminated on or after 6 April 2018.

However, the Government will not tax termination payments if an individual receives the award outside the UK and it has already been taxed in another country. Individuals will still benefit from the £30,000 income tax exemption and the unlimited employee national insurance contributions exemption for termination payments. This is a fair and proportionate change. Our tax treatment of termination payments is one of the most generous in the world; that is something of which we can be proud. I commend the clause to the Committee.

Question put and agreed to.

Clause 10 accordingly ordered to stand part of the Bill.

Clause 11