§ I now turn to the subject of the taxation of foreign income, a subject which aroused great public interest during the so-called Lonrho affair last spring. In the course of last year's Finance Bill debates, we discussed this whole area in some depth. My predecessor informed the House that a review of the whole subject was being undertaken by the Inland Revenue and that he would take account of the result of this in his 1974 Budget. This task now falls to me.
§ As the House knows, it has been the law for many years that where a man goes overseas to do a job and all the duties of the job are carried out abroad, the earnings from the job are taxable on what is called the "remittance basis", that is, if and when they are brought back to this country. This was, perhaps, a reasonable approach before the days of air travel and multinational companies, but in modern conditions these provisions can be and are used by United Kingdom residents to avoid their proper tax liabilities. For the future, it is clearly imperative that we should put a stop to the avoidance of tax by artificial devices of the kind which received so much publicity last year.
§ My proposals will apply from the start of the 1974–75 tax year. They are as follows. First, the remittance basis will in general cease to apply to earnings by United Kingdom residents from overseas employments, trades and professions, and the basis of taxation will be changed 316 instead to the income arising from overseas employment, irrespective of the amount remitted. But, because of the special considerations applying to incomes of this kind, the tax assessment will be limited to 90 per cent. of the full amount of the income. In this way we shall recognise the special importance to the United Kingdom economy of this income and the expenses which are often incurred in earning it, and at the same time we shall ensure that the individuals concerned do not escape tax. The same treatment will apply to pensions from overseas received by United Kingdom residents. They will pay on the full amount, subject to the 10 per cent. reduction.
§ My hon. Friend the Chief Secretary will later announce somewhat similar proposals applying to foreigners temporarily working in Britain whose employer is resident abroad. Obviously they are not in quite the same position as persons who live here on a permanent basis and they will be assessed to tax on half of their earnings.