Changes to how overseas work, including in India, will be taxed is among wider UK government plans to alter how termination pay outs, such as redundancy payments, will be dealt with by Her Majesty's Revenue and Customs (HMRC). It would be a mistake for the UK Government to go ahead and abolish, in April 2018, Foreign Service Relief (FSR) on termination payments made to UK taxpayers. FSR is a longstanding relief which wholly or partly exempts non-contractual termination of employment payments from income tax in the UK, where a UK tax resident employee has worked abroad for a significant part of their period of service. We are urging the UK government to rethink its proposal because FSR seems fair to the many UK residents who spend a substantial part of their careers working abroad. It is also vital that the UK continues to support its internationally mobile workforce. In the UK there is a £30,000 exemption on payments made on termination of employment where that payment is not otherwise chargeable to tax; for example as a payment in respect of untaken annual leave or contractual bonuses. Additionally, if an employee has 'foreign service', which is broadly speaking a period of work outside the UK when the employee was not resident in the UK for tax purposes, he/she may be exempt from income tax in the UK on some or all of the compensation payment. The payment will be exempt from income tax in its entirety if the employee's foreign service comprises 75 per cent of the total period of service to the termination date; or all of the previous 10 years, where the total period of service to the termination date exceeds 10 years; or 50 per cent of that period including any 10 of the previous 20 years, where the total period of service to the termination date exceeds 20 years. Where the full exemption is not available, the individual may make a claim for partial relief on that part of the compensation payment in excess of £30,000. The taxable amount above £30,000 is reduced pro rata depending on the proportion of the individual's foreign service to their total period of service. Termination payments arise in a whole range of common circumstances including redundancy, breach of contract, irreconcilable differences between employer and employee and a personal thank you for a relationship that has endured over many years. While they may happen at a 'single point in time' and be intended to compensate for the loss of future earnings they will generally recognise the time invested by an individual with their employer over a number of years. We consider that it is right to recognise those parts of a termination payment that are 'sourced' to periods of non-UK employment. 'Sourcing' payments of earnings between UK and non-UK duties in order to determine what earnings are liable to UK tax is fully recognised in the UK tax code. For example, changes made in 2014 to income tax rules for internationally mobile employees mean that from 6 April 2015 taxable income arising from the exercising of share options is apportioned on a time basis so that only the part which relates to UK duties is subject to UK income tax. Removing FSR would mean that termination payments are actually treated less favourably in the UK than contractual payments of earnings or the vesting of share options. We believe that FSR is as relevant today as it was when it was introduced and that it is right to reflect FSR in deciding what should properly be sourced to the UK and taxed in the UK and what to non-UK service - and, thus, exempted from UK tax. FSR is logical and fair and has worked well in practice over many years. Matthew Brown is the Technical Officer for the Employment Taxes and Owner Managed Business sub-committees at the UK's Chartered Institute of Taxation.