Income tax and National Insurance contributions on relocation packages

Contents

If your employer helps you to move home because of your job, any payments you receive, or any goods or services provided for you, are treated as part of your earnings for tax and NICs purposes. However, the first £8,000 of any help you get from your employer is exempt from tax and NICs as long as certain conditions are met.

You can qualify for the exemption if

  • you have to move home to
    - take up a new job with a new employer
    - take up a new job with your existing employer
    - continue your current job but at a new location
  • your existing home is not within reasonable daily travelling distance of your new workplace
  • the home you move to is within reasonable daily travelling distance of your new workplace
  • your employer reimburses your expenses.

But, if your employer pays you a sum of money that you can use as you wish, no exemption will be available. The full amount would be chargeable to tax and NICs

Do I have to dispose of my existing home?

No, but the home you move to must become your main residence.

If, for example, you stay in your new home only during the week, return to your existing family home most weekends and your family do not intend to move permanently to your new home, then your old home will probably remain your main residence. In that case, you would not be entitled to the relocation exemption.
But, if you buy a new home, move into it with your family and rent out your old home, your new home will probably become your main residence. If it does, you will qualify for the exemption.

What is included in the exemption?

Most expenses connected with buying and selling a home, moving possessions, and making preliminary visits to the new location qualify for the exemption. For tax, the exemption is limited to the first £8,000 but there is no equivalent limit on qualifying expenses for NICs.

Is there any time limit?

There is no time limit for NICs. But, to get tax relief your expenses must be incurred, or the benefits provided, before the end of the tax year following the one in which you start your new job (a tax year runs from 6 April one year to 5 April the next). The date you move home does not matter so long as the move satisfies the conditions set out above.

So, if you start your new job

  • on 18 March 2004, you have until 5 April 2005 to use your exemption
  • on 2 September 2004, you have until 5 April 2006 to use your exemption.

If you cannot use all your exemption before the end of your time limit, consider contacting your Tax Office about an extension. They may be able to extend the time limit if, for example, you have to delay moving to allow a child to complete school exams, or because you cannot sell your old home within the time limit.

What happens if I receive help from someone other than my employer?

The same rules apply to all payments, goods or services you receive because of your job, whether from your employer or someone else.

Which expenses and benefits may qualify for exemption?

Expenses and benefits that may qualify for exemption are

  • costs of disposing of your existing home, whether you own it or rent it (or of a proposed disposal which falls through), such as
    • legal fees and services
    • estate agent’s and auctioneer’s fees and services
    • advertising
    • disconnecting gas, electricity, water and telephone supplies
    • loan redemption costs, where the loan was raised to buy your existing home, or where the loan was secured on your existing home
    • rent, insurance, maintenance and security once the property is left empty and before you sell it
  • costs of acquiring a new home (or of a proposed acquisition which falls through for reasons outside your control, or where you have good reason to pull out) including
    • legal fees and services
    • loan arrangement costs and mortgage indemnity premiums
    • structural surveys and valuations
    • Stamp Duty and Land Registry fees
    • fees payable to the Keeper of the Registers of Scotland
    • fees payable to the Land Registry in Northern Ireland or to the Registry of Deeds for Northern Ireland
    • connection fees for gas, electricity, water and telephone supplies
  • costs of moving household furniture and effects (including ordinary gardening equipment), such as
    • packing and unpacking
    • temporary storage, if you do not move directly from the old residence to the new
    • insurance specially taken out to cover goods in transit or in temporary storage
    • removing and refitting domestic goods
    • moving ordinary domestic pets
  • travel and subsistence costs for
    • family visits to the new location
    • family travel when the actual house move takes place
    • your travel and accommodation, if you have to commute (daily, weekly, etc) temporarily to your new place of work (if you move to your new home after you move your job) or to your old place of work (if you move to your new home before you change jobs within an organisation)
    • temporary accommodation provided for you at the new location if you leave your old home before you can occupy your new home
    • travel between the old home and the temporary accommodation
    • travel between the new home and the temporary accommodation when the house move takes place before the job transfer
    • accommodation and travel for a child (under 19 at the beginning of the tax year in which you start your new job) who has to stay at the old location, or move to the new location before the rest of your family, in order to ensure continuity of schooling
  • costs of replacing domestic goods such as carpets, curtains and cookers because the goods used in your old home are unsuitable for installation in your new home, less any amount you received for the replaced goods
  • interest payments on bridging loans providing
    • the loan is used only to redeem a loan secured on your old home or to purchase your new home
    • the loan does not exceed the market value of your old home at the time you purchase your new home.

Which expenses and benefits cannot qualify for exemption?

There are some payments, goods or services your employer may provide, which can never qualify for exemption and are, in fact, subject to tax and NICs in full. They are

  • mortgage or housing subsidies if you move to a higher cost area
  • interest payments for the mortgage on your existing home
  • re-direction of mail
  • council tax bills
  • the purchase of uniforms for your children’s new school
  • compensation for losses, such as
    • having to give up a part- used season ticket
    • a penalty for giving insufficient notice of a child’s withdrawal from school
    • the cost of having to join a new sports or social club
  • compensation paid to you for any loss on the sale of your home.

Are there any special rules for bridging loans?

If you take out a loan and your employer reimburses you for the interest payments, or pays them on your behalf, they may qualify for exemption.

If your employer makes arrangements to provide you with a cheap or interest- free bridging loan, this may be a taxable benefit that does not qualify for exemption. However, you can apply to your Tax Office for additional relief providing

  • the help you receive from your employer does not use up your exemption
  • you are not getting any further assistance from your employer
  • your time limit has not expired.

How is the amount of tax and NICs worked out?

The table at the end of this leaflet shows the amount of tax and NICs chargeable for each type of expense or benefit that your employer may provide. You can also get more information from your Inland Revenue Enquiry Centre, Tax Office or Inland Revenue (National Insurance Contributions) office.

Do I need to tell my Tax Office about the help I get?

Your employer will tell us about any help you are given. We will review your tax liability and, if necessary, will adjust your PAYE code as a result.

Your employer will let you have the same information that it provides to us, by 6 July following the end of the tax year.

If you get a Tax Return, you will need to refer to the information when you complete your return. Sometimes employers pay the tax on behalf of their employees under an arrangement with us called a PAYE Settlement Agreement (PSA). If so, you do not need to include it on your tax return. If in doubt, ask your employer whether this applies to you.

If you do not get a Tax Return, you do not need to tell us about the help you receive from your employer. We will let you know about any tax due or repayable for the tax year.

How is tax and NICs collected on any expenses and benefits not covered by the exemption?

Your employer should deduct tax and NICs on any payment made to you that cannot qualify for exemption. Any additional tax that is due will be collected by sending you a tax return after the end of the tax year, or, if the amount is small, by an adjustment to your PAYE code.

What if my employer wants to pay the tax and NICs bill for me?

Your employer may decide to help you pay any tax or NICs. You need to know whether this applies to you because if you get a tax return, you will not have to include anything for relocation expenses or benefits. If in doubt, ask your employer.

What if I move to or from the UK?

The same rules apply to any help you get from your employer if you are coming to work in the UK from abroad, or moving to work abroad from the UK. You are entitled to the £8,000 exemption in the usual way.
If you are not domiciled in the UK and you came to work here after living abroad, in addition to the £8,000 relocation exemption, you are entitled to two further tax reliefs.

  • You are entitled to a tax deduction for all your travel costs between the UK and your home abroad which are paid for by your employer, for up to five years, providing certain conditions are met.
  • If you are in the UK for 60 or more consecutive days, your employer can pay for your spouse and children to visit you or to travel with you to and from the UK - up to two trips a year for up to five years.

Broadly, you are domiciled in the country where you have your permanent home. This is explained in more detail in Residents and non- residents. Liability to tax in the United Kingdom (PDF 640K).

There are also special rules on travelling expenses for people going to work abroad. If you qualify under these rules, you can get tax relief for your travelling expenses as well as the £8,000 relocation exemption. For more details, contact your Tax Office.

What if my employer uses a relocation company?

The expenses and benefits your employer supplies directly to you are subject to tax and NICs in the normal way. Any services supplied by a relocation company are also subject to tax and NICs, based on how much your employer has to pay for them. The £8,000 exemption applies to all expenses and benefits, as long as the qualifying conditions are met. But, some costs incurred by your employer are ignored when calculating the benefit to you, if you sell your home to them or to a relocation company.
If your employer arranges for you to sell your home for a guaranteed minimum amount to them or a relocation company, it may affect both your income tax and your capital gains tax liabilities, depending on the exact arrangements. You should ask your employer or contact your Tax Office if you want to know how your tax might be affected.

Examples

The following examples show how different relocation packages are taxed.

Example 1

Bob moves from Bristol to York to start his new job on 13 May 2004. He buys a new house in York on 28 July and moves that day, having stayed in a hotel between May and July. His family joins him on 5 August and his house in Bristol is sold on 23 August 2004. The expenses paid by his employer and his liability to tax and NICs are shown opposite.

Expenses and benefits qualifying for exemption   Amount subject to tax Amount subject to NICs
 
Travel and subsistence
Hotel accommodation May - July
1,880
Weekend travel, Bristol to York
980
Family visits to look for new home
800
 
Costs of moving possessions
Removal van hire
500
Costs of disposing of home
Legal fees (sale)
1,000
Estate agents fee
1,600
Replacement domestic goods
Curtains, carpets, cooker
1,800
Costs of acquiring new home
Survey fee
400
Stamp duty
900
Legal fees (purchase)
1,200
Interest on bridging loan
Reimbursed by employer
600
 
11,600

Less exemption (limited)
8,000
No limit
 
3,660
NIL
Expenses and benefits not qualifying for exemption
Disturbance allowance
2,000
2,000
2,000
Payment for loss on part-used season ticket
200
200
200
Total expenses and benefits subject to tax and NICs
£5,860
£2,200

Example 2

Linda moves, with her job, for three years from London to Swindon in October 2004. She decides to keep her flat in London, and rent a house in Swindon. She starts work in Swindon on 7 October and finds a house to rent on 6 January 2005. Meanwhile, she lives in a house rented by the company. The expenses paid by her company and her liability to tax and NICs are shown below.

Expenses and benefits qualifying for exemption   Amount subject to tax Amount subject to NICs
       
Travel and subsistence      
Chargeable value of employer-provided house (rent paid)
1,500
Visits to Swindon in anticipation of move
120
Costs of moving possessions
Removal van hire
350
Temporary storage costs (October - January)
400
Costs of acquiring new home
Legal fees to rent new property
800
Less exemption
3,170
NIL
NIL
 
Expenses and benefits not qualifying for exemption
Allowance to buy additional domestic goods (old home not sold)
2,000
2,000
2,000
Council tax on old home
600
600
600
 
Total expenses and benefits subject to tax and NICs
£2,600
£2,600

Summary of amounts chargeable to tax and NICs

If an expense or benefit qualifies for exemption, the amount to be set against the £8,000 limit is the chargeable amount identified in the following table.

Type of expense or benefit provided by your employer The chargeable amount
Money given to you The amount paid to you
Money to someone else to settle your personal bills The amount paid by your employer, including VAT
Payment to someone else to provide a service for you (hotel accommodation, rail travel, legal services) The amount paid by your employer, including VAT
An asset given to you The market value of the asset
The loan of an asset, other than a car or van * 20% of the market value when it was first made available, less any contribution you make. Charged annually for as long as you have use of the asset
A voucher given to you The cost to your employer of providing the voucher, including VAT
Accommodation rented by the business The rent paid by your employer for the period of your stay, less any contribution you make
Accommodation owned by the business A proportion (depending on the length of your stay) of the gross value of the accommodation (taken from the rating lists) plus an additional charge if the property cost your employer more than £75,000, less any contribution you make

* The amount chargeable to tax and NICs is based on specific statutory rules. Only cars and vans used solely for relocation purposes can qualify for exemption.