Taxation Readers’ Forum: Post retirement – returning UK citizen

Writing for Taxation magazine’s Readers’ Forum, BKL tax consultant David Whiscombe answers a reader’s query on foreign pay and investments for a returning UK citizen approaching retirement.

‘My client is UK domiciled but has been working abroad for a number of years as a senior employee in a large company. Now approaching retirement, he is planning to return to the UK and has asked for advice on two related points.

First, he is to receive a ‘leaving allowance’ from his employer after he has ceased employment, likely to be in excess of $100,000. This will be entirely attributable to his non-UK employment carried out abroad. Am I right in saying that as long as he returns to the UK after the cessation of employment the allowance will not be taxable here? Or should he not return to the UK until the start of the tax year after that in which the allowance is actually paid to him?

Second, he is considering investing in a ‘company sponsored international savings plan’ with a reputable financial institution. The rules of this plan will not allow him to make contributions when he returns to the UK. It seems to me that from a UK tax point of view it is inefficient, in that he won’t get any tax relief for contributions he makes (or the employer makes on his behalf), yet payments out of the fund could be taxable as pension income. Have I understood this correctly?’ Query 19,488 – Cautious.

David Whiscombe’s reply: the payment may be a relevant benefit under ITEPA 2003, s 393

Potentially, this is complicated. If the ‘leaving allowance’ is contractual or customary, it is likely to be chargeable as ‘earnings’ under the basic charging rule at ITEPA 2003, s 62. This seems the most likely analysis.

Earnings are subject to tax under s 62 only if:

a) the earnings are attributable to duties performed in the UK; or

b) the earnings are for a (non-split) tax year for which the employee is resident in the UK; or

c) the year is a ‘split year’ for residence purposes and the earnings are for the part of the year for which the employee is resident in the UK.

All the work was done abroad, so there can be no charge under the first leg.

As to the other legs, it is necessary to determine what period any earnings are ‘for’. The recent case of Murphy (TC7224) suggests that HMRC may seek to assert that a ‘leaving allowance’ is earned when the employment ceases (rather than rateably over the entire period of the overseas employment).

Thus, if the year of return is a split year (which is likely) the earnings will relate to (in other words, will be ‘for’) the overseas part of that year. On that basis, there would be no charge to tax.

But, on the facts given, it is possible (though not likely) that the split year rules do not apply to the year of return and that the client is resident in the UK for the whole of that year. On that basis, the allowance would be earnings for a (non-split) year of residence so would be taxable in full.

If the leaving allowance is not contractual or customary, it is likely, as a payment on retirement, to be treated as a ‘relevant benefit’ chargeable under ITEPA 2003, s 393. Such benefits are treated as employment income of the year in which they are received.

There is scope for exemption (under s 395B) if foreign service is involved, but a requirement for exemption is that the client is not resident in the UK for any part of the year in which the benefit is received; receipt in the ‘overseas’ part of a split year does not help. Accordingly, if the charge is levied under s 393, the client should ensure that he is not resident in the UK for the year in which the allowance is received.

The article is also available on the Taxation website.

For more information, please get in touch with your usual BKL contact or use our enquiry form.



Sam Inkersole

In 2022, Sam won the Taxation’s Rising Star award at the Taxation Awards in and was named in the Accountancy Age 35 Under 35.

Jon Wedge

While Jon’s client work focuses on the financial services sector, he also oversees the firm’s assurance service, as well as supporting the trainees following in his footsteps.


Elana joined us in 2017 as an ACA trainee, after graduating from Durham University where she had studied languages. She is now a manager in our assurance team.


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