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Sam
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I have a question about applicability of S413 to my case. I

Resolved Question:

I have a question about applicability of S413 to my case.
I am separating from my co after 21 years of service with the group. The dates are:
Joined in Germany Sep. 1995
Transferred to South Africa May 2002
Transferred to LUXEMBOURG Sep 2006
Transferred to London May 2007
Termination July 2016
Question I have is: Will the ex gratiaayment I am receiving be entirely expemt from income tax in UK under the provisions of S413?
Is there any other criteria to be fulfilled other than the time period of foreign service?
Thanks.
Submitted: 10 months ago.
Category: Tax
Expert:  Sam replied 10 months ago.

Hi

Thanks for your question - I am Sam and I am one of the UK tax experts here on Just Answer.

The period of foreign employment has certain criteria that needs to be met

75% or more of the whole period of service, or

-the whole of the last 10 years service, or

-at least 50% of the whole period, including any out of the last 20 years, and the whole period of service exceeds 20 years.

You will meet this on the last criteria

at least 50% of your time was abroad and the whole period of service exceeds 20 years

I have added the appropriate copy of legislation for you from ITEPA 2003 S413

S 413 Exception in certain cases of foreign service

(1)This Chapter does not apply if the service of the employee or former employee in the employment in respect of which the payment or other benefit is received included foreign service comprising—

(a)three-quarters or more of the whole period of service ending with the date of the termination or change in question, or

(b)if the period of service ending with that date exceeded 10 years, the whole of the last 10 years, or

(c)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.

(2)In subsection (1) “foreign service” means service to which subsection (3), (4) or (6) applies.

(3)This subsection applies to service in or after the tax year 2003-04 such that—

(a)the earnings from the employment were not general earnings to which section 15 or 21 applies (earnings for year when employee resident and ordinarily resident in UK), or would not have been had there been any, or

(b)a deduction equal to the whole amount of the earnings from the employment was or would have been allowable under Chapter 6 of Part 5 (deductions from seafarers' earnings).

(4)This subsection applies to service before the tax year 2003-04 and after the tax year 1973-74 such that—

(a)the emoluments from the employment were not chargeable under Case I of Schedule E, or would not have been so chargeable had there been any, or

(b)a deduction equal to the whole amount of the emoluments from the employment was or would have been allowable under a foreign earnings deduction provision.

(5)In subsection (4) “foreign earnings deduction provision” means—

(a)paragraph 1 of Schedule 2 to FA 1974,

(b)paragraph 1 of Schedule 7 to FA 1977, or

(c)section 192A or 193(1) of ICTA.

(6)This subsection applies to service before the tax year 1974-75 such that tax was not chargeable in respect of the emoluments of the employment—

(a)in the tax year 1956-57 or later, under Case I of Schedule E, or

(b)in earlier tax years, under Schedule E,

or it would not have been so chargeable had there been any such emoluments.

So your employer can apply S413 under that condition but due to changes in legislation from 2013 they also need to consider to see if any of the award relating to after 2013 (of which there will be a proportion) has to remin liable to tax - and if so if this falls below the £30,000 exemption - this could see you having an entire tax free lump sum.

I would advise it may be an idea for your employer to liaise with Non residency unit for clear definitions of what can and cannot be paid tax free due to the fact your last 9 years have been within the Uk and definitions of residency changed 2013.

I hope this at least points you into the factors that need to be considered - I am afraid I cannot make a full and final decision - this would need to be agreed with HMRC but it would appear that the whole payment can be of tax free IF the ampount in relation to 2013 to retirement is less than £30K

Do let me know if I can assist further

Thanks

Sam

Sam, Accountant
Category: Tax
Satisfied Customers: 13810
Experience: 26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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Customer: replied 10 months ago.
Thanks Sam.
I will appreciate more clarity about how will the changes post 2013 affect tax?
If, for example my ex gratis attributale to post 2013 period of my job is £ 50,000/-, how will it be treated?
Is it straight 50 - 30k = 20,000 taxable?
And rest all is tax free?
Thanks.
Expert:  Sam replied 10 months ago.

Hi

Thanks for your further question

Your employer will need to liaise with Non Residency as advised as they need to look at the whole picture to establish whether you have met the criteria for the foreign service element - but assuming this is all in order - then of the £50K to advsie is relevant to the post 2013 period - then yes you will be entitled to the first £30K free leaving £20K liable to income tax

Thanks

Sam

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