The relocation allowance is valued up to £8,000. If you meet all the qualification criteria, there are no reporting requirements or tax/NIC obligations.
The employee’s reason for relocation must fall under one of the following categories:
- Starting a new job
- A change in their employment duties
- A change in the location where their duties are typically performed
The expenses and benefits paid to the employee must fit into at least one of the following six categories:
- Sale of their former home
- Purchase of a new home
- Transportation of the employee’s belongings to the new home
- Associated travel and subsistence costs
- Domestic goods for the new home
- Bridging loans related to the purchase of the new home
The employee does not need to sell their home to qualify for the relief, but they must change their residence to the new home.
Expenses must be incurred, or benefits given to the employee within a year following the end of the tax year in which the change in employment occurred. For instance, if a company moved its premises from Manchester to Wilmslow in June 2024, you’d have until 5 April 2026 to utilise the allowance.
One requirement is that the old home must not be within a ‘reasonable travelling distance’ of the new workplace, while the new home must be within a reasonable travelling distance. The legislation doesn’t define what constitutes a reasonable travelling distance; each case is evaluated on its own merits regarding distance, time, and inconvenience caused. For example, someone moving from somewhere with a tram station outside the front door may save considerable travel time to the workplace, despite the new home not being that much closer ‘as the crow flies.
Some allowable expenses include:
- Generally, all fees related to the house sale, including estate agent fees.
- Related costs in acquiring a new home, such as Stamp Duty Land Tax.
- Costs of replacing domestic goods if the goods used in the old home are unsuitable for the new home, less any amount received for the replaced goods.
Certain expenses do not qualify for the exemption, including:
- Any subsidy if house prices in the new area are higher than the employee’s previous home
- Mortgage interest payments for the employee’s existing home
- Compensation for any loss made on the sale of the employee’s home
- Compensation for other losses incurred in moving home
- Mail redirection
- Council tax bills
Given the inclusion of expenses like estate agent fees and stamp duty land tax, it’s easy to exceed the £8,000 threshold. Any payments over this amount generally need to be reported on form P11D, and the employee will be taxed accordingly. Additionally, the employer will need to pay Class 1A NIC on any excess over £8,000.
If you have new or existing staff looking to move home and, as a result, qualify for this allowance, get them to put in an expenses claim (with documentary proof) for costs of up to £8,000. You can pay them and your company will get corporation tax relief on the payment. The employee will pay no tax or national insurance – a great result all round!
