When a new job or a transfer means changing home, many employers pay part of the cost of moving. HMRC treats qualifying relocation costs up to £8,000 as exempt from income tax and National Insurance. This article summarises GOV.UK’s employer guidance on relocation costs and HMRC’s Employment Income Manual, which apply to employers and employees across the UK. It is general information, not tax advice, and the employer’s own relocation policy sets what is actually offered.
The £8,000 exemption
GOV.UK states that some relocation costs up to £8,000 are exempt from reporting and paying tax and National Insurance. These are called qualifying costs, and they include the costs of buying or selling a home, moving costs, buying certain things for a new home and bridging loans. An employer does not have to report or deduct anything for qualifying costs up to £8,000.
Above that figure, the employer must report the amount on form P11D and pay Class 1A National Insurance on the excess. HMRC’s manual gives a worked example in which a package of £9,000 leaves £1,000 taxable as general earnings. Planning the household budget around what the employer will actually pay is covered in the guide to the moving house budget.
Who qualifies and when the costs must be paid
GOV.UK sets four conditions. A new employee must be moving area to start a job, or an existing employee must be changing their place of work within the organisation. The new home must be reasonably close to the workplace and the old home must not be. The costs must be paid before the end of the tax year that follows the one in which the employee started the job.
HMRC’s manual adds that the employee must change their main residence as a result of starting a new employment, a change of duties or a change of the place where duties are normally performed. A rented property can be the main residence. Reasonable daily travelling distance is not defined in the legislation, and the manual tells staff to apply common sense and local conditions, noting that London commuters commonly travel further. The time limit is fixed by the job start date, not the date of the move: for a job started on 1 March 2003, the manual’s example allows costs incurred by 5 April 2004.
Which costs count
The manual lists the specific expenses covered, grouped by stage of the move.
- Selling the old home: legal expenses, estate agent’s or auctioneer’s fees, advertising, disconnecting utilities, penalties for redeeming a mortgage, and, while the property stands empty, rent, insurance, maintenance and security. Council tax for the empty period is not allowable.
- Buying or renting the new home: legal expenses, loan arrangement fees, surveys, Land Registry fees, stamp duty and connecting utilities.
- Transporting belongings: packing and unpacking, insurance in transit, taking down and reattaching fittings, and temporary storage where there is no direct move, though not storage of items the employee has no intention of moving.
- Travel and subsistence: preliminary visits to the new location, travel on the day of the move and temporary living accommodation.
The removal quote comparison in the guide to comparing removal quotes helps identify which charges fall into the transporting category.
Bridging loans
GOV.UK says a bridging loan counts as a qualifying cost only if the employee or family members sell the old home and buy a new one, the loan bridges the gap between buying the new house and receiving the sale proceeds, it is used only to buy the new house or pay off loans on the old home, and it is not for more than the market value of the old home when the new one is bought.
Cancelled moves and unsold homes
The manual states that the employee does not need to dispose of the old residence to qualify, but there must be a change of main residence. If a relocation is cancelled and the main residence does not change, expenses paid or reimbursed, and benefits provided, in connection with it become taxable. The manual adds that a sale that falls through does not remove the exemption provided the employee eventually sells or otherwise changes residence, and that relief also covers an intended purchase that does not go ahead for reasons outside the buyer’s control or because the buyer reasonably decides not to proceed, such as after an adverse survey. The effect of a chain collapse on a removal booking is covered in the guide to chain breaks and gazumping.
Costs outside the rules
Relocation benefits that do not qualify are treated differently. GOV.UK says a non-qualifying benefit that the employer arranges and pays for directly is reported on form P11D with Class 1A National Insurance due on the cost. Where the employer reimburses the employee for non-qualifying costs, they count as earnings and are added to pay for PAYE tax and Class 1 National Insurance.
The bottom line
Up to £8,000 of qualifying relocation costs paid by an employer is free of income tax and National Insurance, provided the main residence changes, the new home is within reasonable daily travelling distance of the job and the old one is not, and the costs are paid by the end of the tax year after the one in which the job started. Amounts above the limit and non-qualifying costs are taxable. Checking the employer’s policy and keeping invoices for each stage of the move makes the position clear.
Sources
- Expenses and benefits: relocation costs (gov.uk)
- Expenses and benefits: relocation costs, what you do not have to report (gov.uk)
- Expenses and benefits: relocation costs, what to report and pay (gov.uk)
- HMRC Employment Income Manual, EIM03104, EIM03109, EIM03110, EIM03111 and EIM03113 (gov.uk)