As part of the Finance Bill, a measure has been introduced to remove foreign service relief for termination payments. However, a residency test has also been introduced to ensure it only effects those who are UK resident in the tax year their employment is terminated.
The measure will effect employees who have spent part or all of their service with their employer overseas. It will ensure that those who are UK resident in the tax year their employment is terminated won’t be eligible for foreign service relief on their termination payment.
Foreign service relief allows qualifying individuals to be either completely exempted from Income Tax on their termination payment or have the taxable amount reduced.
The change has been introduced to help make the tax system fairer. Going forward, those who have worked abroad, but are resident in the UK in the year their employment is terminated, will be taxed in the same way as others who haven’t worked abroad.The full policy paper can be foundhere.
