EIM13970 - 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 376 months.
The employee was not resident or not ordinarily resident during the periods shown in the table below so these periods count as foreign service (see EIM13690).
It may be appropriate to use workdays or whole months in the calculation depending on the circumstances. This example uses whole months for simplicity, but see EIM13985 for a more detailed calculation of foreign service using workdays.
| Period when not resident and/or not ordinarily resident * | Months (rounded up) |
|---|---|
| 1 January 1987 to 27 April 1987 (NOR) | 4 |
| 21 March 1990 to 15 May 1996 (NR) | 74 |
| 4 August 1999 to 1 September 2004 (NR) | 61 |
| 1 November 2009 to 30 April 2018 (NR) | 102 |
| Total foreign service | 241 |
* non-ordinary residence periods on or after 6 April 2013 do not count as foreign service.
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?
376 × ¾ = 282. Only 241 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 May 2009 to 30 April 2018 is not wholly foreign service as the period 1 May 2009 to 31 October 2009 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 (376 months × ½ = 188) qualify as foreign service?
Yes, so does the period that qualifies (241 months) include at least 10 of the last 20 years? The last 20 years covers the period 1 May 1998 to 30 April 2018. In that period, 163 months (15 years 7 months) is foreign service.
Yes: give full exception to the £100,000.