Brown moves to close expat tax loophole

TENS of thousands of British workers who spend long periods abroad will be hit by a new tax hidden deep in Gordon Brown's second Budget.

A parliamentary row is brewing over the abolition of the Foreign Earnings Deduction, which permits UK residents to avoid tax on earnings during the time they spend out of the country.

Treasury officials say it is only fair that the loophole, introduced by Denis Healey when Labour chancellor in 1977, should be closed in the current Finance Bill to bring foreign earnings into line.

They insist that the "vast majority" of residents working abroad are paid at least pounds 50,000 a year net, and often have free housing, healthcare and education for their children thrown in.

But David Heathcoat-Amory, shadow Chief Secretary to the Treasury, said: "I have been inundated with complaints from ordinary hard-working people who will be hit by this measure.

"The Government says it is designed to deal with a small number of media and entertainment personalities who use the rules to avoid tax. But it is not just the Spice Girls who will be affected. Thousands of ordinary people - construction workers, nurses, teachers, even overseas aid workers - will be hit."

Abolition of the FED is expected to bring in pounds 250m a year. A clause in the Finance Bill implementing the Budget measure retrospectively to 17 March will be debated on Tuesday in the teeth of Conservative hostility. Ministers say they are standing firm on the reform.

A Treasury spokesman said: "The Government believes in a fair tax system for all. It is not right that groups of workers on well above average earnings should be able to escape tax on their income, so obliging others to pay their share for them. That is why the Government is taking steps to close this loophole."

To qualify for FED, workers must spend 365 days of the tax year abroad, and some take extended holidays in foreign parts to ensure they retain their tax-free status. The Treasury has no precise overall figure for those involved, but insists that only 315 teachers will be hit.

The Tories claim that abolition of FED will also damage UK competitiveness, because companies employing expatriate workers will have to increase salaries to compensate for UK taxes, thus driving up costs to customers.

"This will reduce our foreign-exchange earnings just as the deficit on trade in goods and services is running at record levels," Mr Heathcoat- Amory said.

But the shadow Chief Secretary believes that the Government will change its mind. "I will be very surprised if they don't climb down. These people often live and work in unpleasant places and earn vital foreign earnings for this country. Yet they don't consume any services in the UK.

"The well-advised rich will devise other ways of avoiding tax on foreign earnings. These Budget measures will hit the people who went abroad on work contracts and suddenly find themselves liable for full UK tax."

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
News
ebookA unique anthology of reporting and analysis of a crucial period of history
News
peopleMathematician John Nash inspired the film Beautiful Mind
News
Richard Blair is concerned the trenches are falling into disrepair
newsGeorge Orwell's son wants to save war site that inspired book
Life and Style
Audrey Hepburn with Hubert De Givenchy, whose well-cut black tuxedo is a 'timeless look'
fashionIt may be a paradox, but the industry loves it
Arts and Entertainment
The pair in their heyday in 1967
music
Life and Style
fashionFrom bathing dresses in the twenties to modern bikinis
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Guru Careers: Software Developer

£35 - 40k + Benefits: Guru Careers: We are seeking a Software Developer (JavaS...

SThree: Trainee Recruitment Consultant / Resourcer

£18000 - £23000 per annum + Commission: SThree: As a Trainee Recruitment Consu...

Ashdown Group: UI Developer - (UI, HTML, CSS, JavaScript, AngularJS)

£25000 - £40000 per annum: Ashdown Group: UI Developer - (UI, JavaScript, HTML...

Day In a Page

Abuse - and the hell that came afterwards

Abuse - and the hell that follows

James Rhodes on the extraordinary legal battle to publish his memoir
Why we need a 'tranquility map' of England, according to campaigners

It's oh so quiet!

The case for a 'tranquility map' of England
'Timeless fashion': It may be a paradox, but the industry loves it

'Timeless fashion'

It may be a paradox, but the industry loves it
If the West needs a bridge to the 'moderates' inside Isis, maybe we could have done with Osama bin Laden staying alive after all

Could have done with Osama bin Laden staying alive?

Robert Fisk on the Fountainheads of World Evil in 2011 - and 2015
New exhibition celebrates the evolution of swimwear

Evolution of swimwear

From bathing dresses in the twenties to modern bikinis
Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine