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Benefits

Relocating – What can the HMRC do to help?

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At a time when interest rates are still relatively low and house prices still subdued in some areas, relocating may be an attractive proposition for some. If relocating is a consequence of your employment and your employer has agreed to meet some or all of the expenses incurred, HMRC allow tax breaks on expenses up to a maximum of £8,000 given certain conditions are met.

If an employer has paid for or reimbursed their employee for relocation expenses incurred and those expenses fall under the heading ‘Qualifying Expenses’ these will be deemed free of tax up to a maximum threshold of £8000. In order for a relocation expense to be categorised as a ‘Qualifying Expense’ it will need to meet four sets of qualifying conditions:

Condition 1 – Reason for relocation

HMRC stipulate that the reason for relocation must be one of the following:

  • The employee is starting a new job with the employer.
  • There has been a change in the employees employment duties
  • There has been a change in the place where the employee’s duties are normally performed.

 

Condition 2 – The expense or benefit must be attributed to at least one of the following six categories: 

  • The sale of the employee’s former residence
  • The purchase of a new residence
  • Transporting the belongings of the employee to the new residence
  • Associated travel and subsistence expenses
  • Domestic goods for the new residence
  • Bridging Loans

 

Condition 3 – The expense or benefit occurred during a specific time period

In order for the expense or benefit to qualify it must have been provided before the end of the tax year after the one in which the employee relocated. As an example if the employee was forced to relocate due to their employer moving premises on the 29th February 2012, the expense or benefit is allowable up until 5th April 2013.

Condition 4 – The travelling distance to the normal place of work

This last condition states the new residence must be within a reasonable daily travelling distance to the new normal place of work and the former residence must not be within a reasonable daily travelling distance of the new normal place of work.

A point to note is HMRC does not give a definitive definition of ‘reasonable daily travelling distance’ and if queried HMRC will review each case on its own merits. As an example if the difference in distance is just a couple of miles as the crow flies but in reality the journey to work is made longer and more costly or prohibits the employee from picking their children up on time due to the extra time in travel, it may be classed as reasonable irrespective of the actual distance.

Relocating Abroad

Whether you are relocating to the UK or relocating abroad, the same rules apply and you are entitled to the £8000 exemption. If you are not domiciled in the UK additional relief is also available to you:

i) You can claim for a tax deduction for up to five years on your travel costs from the UK to your home abroad providing certain conditions are met.

ii) If you are in the UK for 60 or more consecutive days your employer can pay for your spouse and children to visit without any tax liability twice a year for up to five years.

 

In General

As a general rule most relocation expenses connected with buying, selling or renting a new home, travel expenses incurred viewing a new property or transporting personal possessions to the new property will qualify for the exemption of tax to a maximum of £8000. The HMRC website is a good reference point for a list of qualifying expenses. It is worth pointing out that there are certain expenses that do not qualify such as Council Tax, mail re-direction, purchase of new school uniforms if you have children that will be attending a new school due to the relocation. Again further details of non-qualifying expenses can be found on the HMRC website.

It is also worthy to note that the employee does not have to sell a residence to qualify for the tax relief but they must have moved in to a new residence to qualify.

Generally any expenses paid for or reimbursed to an employee over the £8000 exemption threshold will be declared on forms PllD or P9D and will result in either a tax demand for the income tax due or a reduction in the employee’s tax code to recover the tax owed.