Relocation Expenses

Overview 📘

When an employee or director relocates for work, certain relocation and removal costs can be paid or reimbursed by the company tax free, subject to strict HMRC rules.

This guide explains when the exemption applies, what costs qualify, the £8,000 limit, and how any excess should be reported.

When Does the Relocation Exemption Apply?

There is an Income Tax and National Insurance exemption for qualifying relocation benefits and expenses incurred in connection with a change in an employee’s main residence.

To qualify, all of the following conditions must be met:

• The move must be wholly or mainly to allow the employee to live within a reasonable daily commuting distance of their workplace.

  The move must result from one of the following:

  • Starting a new job with a new employer
  • A change in duties within the same employment
  • A change in the location where duties are performed
• The employee must stop using the old home as their main residence and start using the new one as their main residence.
• The old residence does not need to be sold for the exemption to apply.
• The costs must be incurred by the end of the tax year following the job change, unless a longer period is reasonable.

🔗 HMRC Guidance: Relocation Costs

The £8,000 Tax-Free Limit

💡 The total tax-free exemption is capped at £8,000 per employee.

• Qualifying relocation costs up to £8,000 are ignored for tax purposes.

  They do not need to be reported on a P11D.

  Any amount above £8,000 is treated as a taxable benefit and:

  • Subject to Income Tax and Class 1A NICs
  • Reported on a P11D, or
  • Included in a PAYE Settlement Agreement (PSA) if the employer agrees to bear the tax cost

Qualifying Relocation Costs

1. Buying or Renting a New Home 🏠

The following costs can qualify:

• Legal fees on purchase or rental
• Mortgage or loan arrangement fees
• Survey fees
• Land Registry fees
• Stamp Duty Land Tax
• Utility connection charges

Costs relating to a property acquired by a family or household member can also qualify.

2. Abortive Purchase Costs

Costs incurred on an attempted purchase that falls through can qualify if:

• The failure was outside the employee’s control, or
• The employee reasonably decided not to proceed

3. Selling the Old Home 🏘️

Qualifying costs include:

• Legal fees on sale
• Estate agent or auctioneer fees
• Advertising costs
• Mortgage redemption fees or penalties
• Utility disconnection charges
• Security, insurance, and maintenance costs while the property is empty
• Rent paid on an unoccupied old property

HMRC can accept costs relating to a property owned by a spouse, partner, or co-habitee.

4. Removal and Transport Costs 🚢

These include:

• Removal company fees
• Insurance during transit
• Temporary storage
• Detaching and reinstalling domestic fittings

5. Travel and Temporary Living Costs

A wide range of travel and subsistence costs may qualify, including:

• Travel and subsistence for the employee and family when visiting the new area
• Employee travel between the old home and the new workplace
• Temporary accommodation for the employee
• Travel between temporary accommodation and the old or new residence
• Certain education-related travel and subsistence for dependent children under 19

6. Replacement of Domestic Goods 📺

Costs of replacing household items that are unsuitable for use in the new home can qualify, less any sale proceeds from the old items.

7. Bridging Loan Interest

Interest on a bridging loan may qualify where there is a timing gap between:

• Buying the new home, and
• Selling the old home

Important limitations apply:

• The loan amount is capped at the market value of the old home
• Interest relating to the purchase of the new home does not qualify
• Employer-provided cheap loans do not qualify under this relief

Flat Rate Relocation Allowances

Instead of reimbursing individual costs, employers can pay a flat rate relocation allowance.

Key points to note:

• HMRC must be satisfied the allowance only reimburses eligible costs
• If it exceeds £8,000, the excess becomes taxable
• Allowances should normally be reported on a P11D unless fully exempt

Practical Example

Relocation scenario

An employee relocates from Dubai to the UK and incurs the following costs:

• £8,000 is tax free
• £6,500 is taxable
• The £6,500 excess is reported on a P11D or included in a PSA

Key Points to Remember

💡 Relocation relief is generous but tightly defined.

💡 The £8,000 cap is often insufficient for long-distance or international moves.

💡 Planning the structure of the relocation package before costs are incurred is critical.

💡 Poorly structured packages frequently lead to unexpected P11D liabilities during due diligence.