How Much Can You Claim With A Tax-Free Relocation Allowance?

If you are wondering about how much you can claim with a tax-free relocation allowance, you will find your answer in the following blog post. In addition to this, we will also explore the qualifying expenses that are included in a tax-free relocation allowance; as well as review some common mistakes to avoid while claiming expenses from your employer.

How Much Can You Claim With A Tax-Free Relocation Allowance?

You can claim a tax-free amount of £8,000 as part of your relocation allowance. The relocation expenses that are covered under this tax-free amount are termed “qualifying expenses” and  include costs incurred for the following:

• selling an existing and/or buying a new property
• transportation and moving
• purchasing items for the new home
• loans to help pay for a new property 

Whether these payments are made through direct supplier payment, reimbursement or as a lump sum, the tax-free element of your relocation allowance remains applicable.

Costs incurred for relocation that is not covered by your tax-free relocation allowance and thus cannot be categorised as qualifying expenses include the following:

• expenses incurred by you over and above the £8,000 limit
• compensation for any losses incurred during the move, such as selling your current property for less than its market value
• council tax due on your previous home while it remains empty due to your relocation
• expenses incurred for redirecting your mail

This means that a relocation allowance of upto £8,000 does not need to be reported to HMRC as long as it includes the qualifying expenses and the following criteria are met:

• you are relocating either because of a change of employer, a transfer to another location or because your current employer has shifted their business to a new location
• your current residence is not located within reasonable travelling distance of your new place of work
• you move out of your current main residence (you may or may not sell it) 
• your new residence is located within reasonable travelling distance of your new place of work
• your employer pays you for your relocation costs before the end of the ongoing tax year 

That said, while the maximum limit for a tax-free relocation allowance is £8,000 if your employer chooses to provide you with a lesser amount, for instance, they assign you a relocation allowance of £5,000, this will be the tax-free amount of your relocation allowance; irrespective of what the maximum limit may be.

What Are Allowable Expenses For A Tax-Free Relocation Allowance?

Under a tax-free relocation allowance, certain expenses are considered allowable and can be claimed. Here are some common examples of allowable expenses:

• Transportation costs related to moving yourself, your family, and your belongings to the new location. This can cover costs for flights, train tickets, car rental, mileage, and shipping of personal items.
• Travel and subsistence costs incurred during the relocation process, such as meals, temporary lodging, and other incidental costs associated with the move.
• Removal and shipping expenses such as the costs of packing, moving, and shipping your household goods and personal belongings from your old residence to the new location.
• Accommodation expenses for temporary or permanent accommodation can be claimed. This may include hotel stays, rental deposits, lease termination fees, or even the cost of purchasing a new property in the new location.
• Pre-move visits to the new location before the actual relocation; such as the travel expenses for visiting or looking for your new place of residence.
• Storage expenses for safekeeping your belongings during the relocation process; such as the cost of storage facilities.

It is crucial to retain receipts, invoices, contracts, or other relevant documentation as evidence of your allowable expenses when making a claim for a tax-free relocation allowance with your employer.

In case of qualifying costs in excess of the £8,000 tax-free limit, employers are required to declare these in their employee’s P11D form.

What Are Some Common Mistakes To Avoid When Claiming Tax-Free Relocation Allowance?

When claiming a tax-free relocation allowance in the UK, it’s important to be aware of common mistakes that you should avoid. Here are some key ones to consider:

• You need to ensure that you meet all the requirements for claiming the tax-free relocation allowance. This includes moving for work purposes and meeting the specific criteria set by the UK government. Failing to meet these criteria can result in your claim being denied.
• It’s crucial to keep thorough and organised records of all eligible expenses related to your relocation. This includes retaining receipts, invoices, contracts, and any other relevant documentation. 
• You should separate personal expenses from eligible business-related relocation expenses and make sure to only claim expenses directly related to your work relocation, as claiming personal expenses can raise red flags and lead to potential tax complications.
• You should submit your claim within the designated deadlines as missing the deadline can result in your claim being rejected, and you may lose the opportunity to receive the tax-free relocation allowance.

Conclusion:

The above discussion helps to conclude that an employee can claim up to £8,000 as a tax-free relocation allowance; provided that their employer approves the amount and the expenses included under the allowance can be categorised as qualifying costs. It is also essential for an employee claiming the tax-free relocation allowance to meet the eligibility criteria for relocation.

References:

Expenses and benefits: relocation costs: What you do not have to report – GOV.UK

Are Moving Expenses Tax Deductible in the UK?

Which Relocation Costs Should Employers Cover? | DavidsonMorris