What tax relief is available for relocation expenses?
Employees may be eligible to receive tax relief where there is a change in their sole or main residence as part of a job-related relocation, for example starting a new job or where the normal place of work has changed. This relief exempts from tax the first £8,000 of qualifying removal expenses and benefits as set out in part 4, chapter 7 of the Income Tax (Earnings and Pensions) Act 2003. Relocation expenses must be incurred before the end of the tax year (5 April) following that in which the employee starts work in the new location, unless HM Revenue and Customs extends this time limit.
An employee is not required to sell their old home to qualify for tax relief but the relocation must result in a change in their main residence. The new residence must be within reasonable daily travelling distance of the new normal place of work and the old residence must not be.
To qualify for tax relief, removal expenses and benefits must fall within one of six categories: disposal or intended disposal of the old residence; acquisition or intended acquisition of a new residence; transporting belongings; travel and subsistence; replacement domestic goods for the new residence; and bridging loans.
Disposal benefits and expenses include estate agents' and legal fees and the disconnection charges for utility services. Acquisition covers the purchase of a new residence or the acquisition of a tenancy, and includes survey fees, stamp duty and Land Registry fees in England and Wales. Transporting belongings covers packing, transporting and unpacking domestic belongings and the cost of insurance while they are in transit, temporary storage if the move is not direct from the old residence to the new one, and removing domestic fittings from the old residence and refitting them in the new one.
Eligible travel and subsistence costs include preliminary visits to the new location, the cost of temporary living accommodation, and the cost of travel between the home and the work locations during the changeover period, as well as travelling from the old home to the new home when the move takes place.
Domestic goods covers items bought to replace those used in the old home that are not suitable for the new home, such as carpets and curtains. Tax relief is also available where bridging loan interest is reimbursed to the employee, or the employer makes a cheap or interest-free loan to the employee that meets certain prescribed conditions.
Tax relief cannot be claimed for losses incurred in the sale of the employee's old home for which the employer has compensated the employee, if the employee chooses not to go ahead with the relocation, or if their employment terminates before the relocation is completed.