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HMRC internal manual

Employment Income Manual

Termination payments and benefits: example: section 401 ITEPA 2003: exceptions: foreign service

Section 413 ITEPA 2003

A taxpayer held an employment from 1 January 1987 to 30 April 2018. A termination payment of £100,000 within section 401 ITEPA 2003 is paid on the latter date. The employee is non-UK resident for the tax year 2018 to 2019.

The relevant date is 30 April 2018 (the date of termination, see EIM13540). So the total period of the employment is 388 months.

The employee was not resident and ordinarily resident during the periods shown in the table below so these periods count as foreign service (see EIM13690).

Period when not resident and ordinarily resident Months (rounded up)
21 January 1990 to 15 July 1996 78
4 August 1999 to 1 September 2004 61
1 November 2005 to 30 April 2018 162
Total foreign service 301

Apply the 3 tests for exception in EIM13690 (note that the exception is given if any one of the tests is satisfied).

Test 1

Does at least three-quarters of the total period of service qualify as foreign service?

276 × ¾ = 207. Only 189 months qualify. Test failed.

Test 2

Is the total period of service more than 10 years?

Yes, so are the last 10 years foreign service?

The period 1 January 1999 to 31 December 2009 is not wholly foreign service. For example, the period 2 September 2004 to 31 October 2005 does not qualify. Test failed.

Test 3

Is the total period of service more than 20 years?

Yes, so does at least one-half of the whole period of service (276 months × ½ = 138) qualify as foreign service? 

Yes, so does the period that qualifies (189 months) include at least 10 of the last 20 years? The last 20 years covers the period 1 January 1990 to 31 December 2009. In that period, 189 months (15 years 9 months) is foreign service.

Yes: give full exception to the £100,000.