SE03140 - Removal or transfer costs: expenses and benefits 1992/93 and prior

Extra Statutory Concession A5 (ESC A5)

SE1230: Chargeable items: removal expenses: ESC A5a information

The guidance below at paragraphs SE1230 - SE1240 (old four-figure references) apply where an employee took up a job with a new employer or was transferred within an organisation

• before 6 April 1993, or
• on or before 2 August 1993 if he/he was committed to the move before 6 April 1993.

No assessment should be made in respect of removal expenses borne by the employer where an employee has to move house in order to

• take up another job within the same organisation, or
• take up a job with a new employer

PROVIDED THAT

• the expenses are reasonable in amount, and
• their payment is properly controlled.

Extra Statutory Concession ESC A5 extends this exemption to directors, and employees with emoluments at a rate of £8,500 a year or more. (See SE21805 for the full text of the Concession).

SE1231: Direct/indirect removal expenses: meaning of change of residence

Direct removal expenses covered by the Concession are listed at SE03140. Indirect expenses similarly covered are also listed at SE03140.

Take particular note of the 'betterment restriction' referred to at the end of SE03140.

The lists are not necessarily exhaustive. Remember that the expenses borne by the employer should be reasonable in amount and properly controlled.

A CHANGE OF RESIDENCE within the terms of the concession occurs only where the employee, owning or renting property, disposes at arm's length of whatever interest he had in the property at the old location and acquires an interest (not necessarily a similar interest) in property at the new location. It does NOT apply where the employee retains the former residence - and possibly lets it out. In these circumstances any expenses met by the employer are assessable under Schedule E.

(Apply this meaning also for Additional Housing Cost Allowances – ESC A67 at SE02001 – SE02004.)

SE1232: Removal: round sum allowances to meet miscellaneous costs

To be within Extra Statutory Concession ESC A5a a flat-rate disturbance allowance, intended to cover miscellaneous costs not separately reimbursed, must not exceed the Treasury limits applicable to Civil Servants.

From 19 December 1989 the maximum flat-rate transfer grants payable in the Civil Service were

Period	Married employee £	Single householder £	Single non-householder £
19-12-89 to 31-3-90	2,200	1,300	500
1-4-90 to 31-3-91	2,350	1,400	550
1-4-91 to 31.3.92	2,550	1,550	600
1.4.92 to 31.3.93	2,655	1,615	625
1.4.93	2,705	1,645	635

The Treasury delegated responsibility for removal expense to individual Departments from 1 April 1993. The figures shown above for periods from 1 April 1993 onwards are the indicative rate published by the Treasury.

For information about the position before 19 December 1989 contact Personal Tax Division, Solihull.

Note that-

• the above are intended to cover items 1-14 inclusive of the indirect expenses listed at SE1240. You should not object if an employer's scheme provides for reimbursement of indirect expenses and a flat-rate grant (not exceeding the above limits) PROVIDED you are satisfied that the employer exercises proper controls to ensure that the employee's total expenditure - subject to a `betterment restriction' where appropriate - is at least equal to the amount of the flat-rate grant and reimbursement received
• no objection should be raised if the lump sum is calculated as a percentage of salary - provided the above limits are not exceeded
• where payments exceed the limits, the excess is taxable.

SE1233: Removal: extra travelling expenses for a temporary period

Payments which reimburse for a temporary period the extra expense incurred in travelling to the new location pending removal, may be treated as non-taxable only where there is a clear intention on the part of the employee to move house. The same is true of payments of subsistence or lodging allowance or of the provision of temporary living accommodation for the employee. The employer should make sufficient checks to ensure that the employee is actively seeking to dispose of his old and to obtain new accommodation.

It may not be necessary for an employee to move house when his normal place of work is changed or he may not intend doing so. In either circumstance any payments by his employer towards the cost of travelling from home to his new place of work are emoluments chargeable under Section 19 (1)1 ICTA 1988. PAYE should be applied. Any subsistence or lodging allowance is similarly taxable.

SE1234: Removal or transfer expenses: interest on bridging loans

A bridging loan is a short-term loan enabling a person to buy a property at the new location before funds become available from the sale of his home at the old location (see RE393). No charge to tax arises on the reimbursement of bridging loan interest by the employer if all the following conditions are satisfied.

• The loan does not exceed a reasonable estimate of the market value of the old property. (If the loan does exceed the expected selling price of the old property, the reimbursed interest on that excess is a chargeable emolument.)
• The loan must only be used to bridge an unavoidable gap between the date expenditure is incurred on the purchase of the new property and the date on which the sale proceeds of the old property are received. (This means that reimbursed interest for a period following receipt of the sale proceeds of the old property is a chargeable emolument.)
• The loan must only be used to

• pay off the mortgage on the old property, or
• fund the purchase of a new property, or
• meet immediately related incidental expenditure such as legal or survey fees.

• The reimbursement is limited to the net amount of interest. This is the gross interest less the appropriate tax relief (including any higher rate tax) available under Section 354(5) ICTA 1988. (Where the reimbursement fails to take account of the tax relief available the whole of the reimbursement is a chargeable emolument. However where reimbursement is made gross but the employee refunds the tax relief, see SE1235.)
• The interest is payable within

• twelve months from the making of the loan, or
• such longer period as the Board may allow under Section 354(6) ICTA 1988 (see SE1236.)

(This condition is necessary because relief in respect of bridging loan interest is restricted to similar periods - SE1236.)

SE1235: Removal/transfer expenses: bridging loan interest: employer action

Employers should deduct tax under PAYE from reimbursed interest

• on any part of a loan which exceeds the expected selling price of the old property, or
• which is for a period following receipt of the sale proceeds of the old property, or
• which fails to take account of the tax relief available (but see below), or
• which is paid by the employee outside the time limit in the last condition of SE1234 (see SE1236).

The reimbursement of interest should be regarded as having been made net where

• the employer initially reimburses it gross - perhaps on grounds of hardship, but
• the employee undertakes to refund any tax relief to the employer when he receives it.

SE1236: Removal/transfer expenses: bridging loan interest: time limit extension

An employee may pay bridging loan interest for a period longer than twelve months because of circumstances outside his control. For example, he may be unable to sell his old residence within the twelve month period. In that case if the period for which the employee is granted relief for the interest paid is extended to up to 36 months under RE394 the period in which the reimbursed interest is exempted from tax should be similarly extended. See also SE26159.

SE1237: Removal or transfer expenses: loss on sale of residence

An employee may suffer a financial loss on the sale of his old residence when he has to move to another one because of a change in his place of employment. If the employer makes good the loss, the payment is not an emolument chargeable under Section 19(1)1 ICTA 1988.

In the case of directors, and employees with emoluments at a rate of £8,500 a year or more, such a payment is regarded as included in Extra Statutory Concession ESC A5 (see SE3250).

A 'loss' in this context means

• an actual loss when the original cost of the residence is compared with the selling price, or
• a notional loss which arises when the employee is forced to sell for less than the normal market value because of the urgency of his move.

The depressed state of the housing market in 1989 and 1990 gave rise to a number of 'guaranteed sale price schemes. These vary in detail but normally consist of a relocation agency, or the employer, agreeing a 'guaranteed price' with the employee. If the house is sold below this price the employer makes up the difference.

Such schemes may be accepted as within the concession if both of the following conditions are satisfied.

• The guaranteed price is based on fair market value at the time the house is put on the market. This should be arrived at by reference to the average of at least two valuations by qualified independent experts. If two valuations differ widely, (say by more than five to ten per cent) a third should be taken.
• Active steps are taken to market the property and any such marketing is controlled, that is, not simply left to the employee.

SE1238: Removal or transfer expenses: bridging loans to directors etc

A director, or an employee with emoluments at the rate of £8,500 a year or more may, by reason of his employment, receive an interest-free loan or a loan at a rate of interest which is less than the official rate. If so, he is chargeable on the benefit of the loan in certain circumstances under Section 160 ICTA 1988 (see SE26101 onwards).

Instructions relating to this charge so far as bridging loans are affected are at SE Appendix 4 at SE26159 onwards).

SE1239: Chargeable items: direct removal expenses covered by ESC A5a

The direct expenses of removal covered by ESC A5 are

1) The normal expenses of transporting household furniture and effects (including ordinary gardening equipment) belonging to the employee, his family and other dependants of his at the time of the move. Included are the cost of moving ordinary domestic pets but not other livestock or any exceptional possessions.

2) Temporary storage charges where furniture and effects cannot be moved directly to the new home.

3) The cost of travel between the old and new homes for the employee, his family and other dependants. Reasonable subsistence may also be paid where the length of the journey merits it.

4) The normal fees of solicitors and estate agents for house purchase and sale (and the equivalent where property is leased).

5) Stamp duty.

6) Land registration fees.

7) Normal expenses connected with a mortgage or loan, including mortgage guarantee and survey fees (but not interest).

8) Private survey fees including the cost of additional tests of the electrical wiring, heating installation and drains.

9) National House Building Council inspection fees, certificate charge and the premium for top-up cover against inflation.

10) Insurance of household furniture and effects while in transport or in store provided this is not covered by the employee's existing insurances.

11) Abortive expenditure within any of the headings above provided that either

• the transaction did not proceed for reasons outside the employee's control, or
• the employee's reasons for withdrawing were entirely reasonable in all the circumstances.

SE1240: Chargeable items: indirect removal expenses covered by ESC A5a

The indirect expenses of removal covered by Extra Statutory Concession ESC A5 are

(Where appropriate, expenditure is subject to the betterment restriction at the end of the list.)

1) Taking down and re-fixing fixtures and fittings, including the cost of altering and adapting them for the new home.

2) Relaying floor coverings, including the cost of altering and adapting them for the new home.

3) Replacement curtains and floor coverings where the originals cannot be adapted for the new home.

4) The initial cleaning of the new home.

5) Disconnection and reconnection of domestic appliances, gas fires and fittings.

6) Replacement cooker where the original cannot be adapted to the fuel supply at the new home.

7) Reinstallation or replacement of a TV or radio aerial.

8) Installation of an ordinary domestic telephone provided the employee had one in his old home.

9) Any loss on domestic telephone rentals at the old location which cannot be recovered.

10) Any loss on an existing season ticket which cannot be recovered.

11) Any irrecoverable part of a subscription to a club which can no longer be used. The initial cost of entering a comparable club, but not the normal annual subscription.

12) Day school fees for the employee's children at the old location for the remainder of the term current at the time of removal but only where double payment for the same term is involved.

13) A contribution for up to two years towards the board and lodging costs of a child who attends a day school at the old location and who must be left behind when the family move in order to complete a course of study leading to an important examination.

A contribution may also be made where the child has to be sent to lodge at the new location in advance of the family move in order to start the course of study. The exemption ceases when the rest of the family move to the new location.

14) Where (13) above applies the employer may also reimburse tax-free reasonable expenses incurred by the child in travelling between the school and the family home

· at the beginning and end of term

and

· on one other occasion during each term.

15) Travel and subsistence expenditure while searching for accommodation and while travelling temporarily before moving. (SE1233)

16) Interest on bridging loans. (SE1234)

17) Actual or notional loss on sale of old property in certain circumstances. (SE1237)

18) Continuing commitments at the old station, where the previous residence is unavoidably unsold after being vacated. Examples are STANDARD community charge (the `second home' charge), Council Tax, buildings insurance and essential maintenance.

BETTERMENT RESTRICTION

The tax-free payment must only enable the employee to purchase assets of an equivalent quality, quantity, type, capacity, condition etc to those at the old home. The employer can pay more if he chooses but the tax-free element must be restricted accordingly.

Claims must be restricted by the amount of any recovery from the disposal of old assets or if the old assets are retained, by their market value.

For example, an employee who has old and cheap carpet in a one-bedroom flat at his old location cannot be paid tax-free the cost of new and expensive carpet for a five- bedroom house at his new location. He can be paid tax-free only the net cost of replacing an equivalent quantity of similar carpet.