Termination payments and benefits: Section 401 ITEPA 2003: exceptions: foreign service: general
Section 413 ITEPA 2003
A payment or other benefit which falls within section 401 ITEPA 2003 is excepted from charge to income tax if a sufficient proportion of the employee’s, or former employee’s service in the employment in respect of which the payment or other benefit is received counts as ‘foreign service’. EIM13690 explains the rules for determining whether the employment included sufficient ‘foreign service’. Foreign service has a special meaning for this purpose (see EIM13690).
With effect from 6 April 2018, this exception is no longer available for payments and other benefits that fall within section 401(1)(a) ITEPA 2003, if all of the following criteria are met:
- the employee or former employee is UK resident for the tax year in which the employment terminates (see EIM42800)
- the employment is terminated on or after 6 April 2018
- the payment, or other benefit is received after 13 September 2017
However, the legislation which removes the exception in the circumstances above does not apply if the employee or former employee is a seafarer and has sufficient ‘foreign seafaring service’ (see EIM33101) in respect of the employment to which the payment or other benefit relates (see EIM13685).
The exception for ‘foreign service’ may still apply for a payment or other benefit received on or after 6 April 2018 if the service of the employee or former employee included ‘foreign seafaring service comprising:
- three-quarters or more of the whole period of service ending with the date of the termination in question, or
- if the period of service ending with that date exceeded 10 years, the whole of the last 10 years, or
- if the period of service ending with that date exceeded 20 years, one-half or more of that period, including any 10 of the last 20 years
‘Foreign seafaring service’ is defined at EIM13685.
EIM13692 explains how to treat termination payments that are no longer excepted from a charge to income tax because the employee, or former employee is UK resident for the tax year in which the employment was terminated.
Where the exception is available, it applies to:
- termination awards not benefiting from the £30,000 threshold and treated as general earnings
- a payment or other benefit which is chargeable to income tax as specific employment income by section 403 ITEPA 2003
In order to determine whether a sufficient proportion of the employee’s or former employee’s service counts as ‘foreign service’ it’s necessary to obtain the following information:
- the relevant date (this is the date of the termination (or change) in question) and
- the amount of foreign service during the employment down to that relevant date - EIM13690 explains how to do this