Relocation Income Tax Allowance
- MAZ
- Jun 26
- 13 min read
Updated: Jul 1
The Audio Summary of the Key Points of the Article:
A Podcast of Comprehensive Discussion on:
Relocation Income Tax Allowance
Understanding the Relocation Income Tax Allowance for 2025-26
What Is the Relocation Income Tax Allowance and Who Can Claim It?
Now, if you’re moving for work, you might be wondering what this relocation income tax allowance is all about. Simply put, it’s a tax relief offered by HM Revenue & Customs (HMRC) that allows employers to cover up to £8,000 of an employee’s relocation costs without those costs being taxed as a benefit-in-kind. This applies for the 2025-26 tax year, running from 6 April 2025 to 5 April 2026, and it’s been fixed at £8,000 since 1993. The allowance covers specific “qualifying costs” when you move your main residence for work-related reasons, whether you’re starting a new job, changing duties, or relocating to a new workplace. But here’s the catch: not everyone qualifies, and the rules are strict.
To be eligible, you must change your sole or main residence because your old home isn’t within a “reasonable daily travelling distance” from your new workplace, while your new home is. HMRC doesn’t define “reasonable” in miles, but it typically means a commute you can realistically manage daily—think 45 minutes to an hour by car or public transport, depending on local conditions. You don’t need to sell your old home, but you must genuinely make the new place your primary residence. The allowance applies to both employees and self-employed contractors running limited companies, though the tax treatment differs slightly, as we’ll explore later.
What Costs Are Covered Under the £8,000 Allowance?
So, what exactly can you claim under this allowance? HMRC outlines six categories of “qualifying costs” that can be covered tax-free up to the £8,000 limit. These are expenses directly tied to the relocation process, and they must be incurred or reimbursed by your employer before the end of the tax year following your move (e.g., by 5 April 2026 for a move in October 2025). Here’s what qualifies:
Disposal of your old home: Legal fees, estate agent fees, or costs from a sale that falls through (if you intended to sell due to the move).
Acquisition of a new home: Legal fees, stamp duty, or loan arrangement fees for buying or renting a new property.
Transporting belongings: Costs of hiring professional movers or transporting household goods.
Travel and subsistence: Flights, train tickets, or temporary accommodation for you and your family during the move.
Bridging loans: Interest on loans to bridge the gap between buying a new home and selling the old one, provided the loan doesn’t exceed the old home’s market value.
Replacement domestic items: Costs for replacing household goods (e.g., curtains or appliances) that don’t fit the new home.
Be careful! Non-qualifying costs, like council tax, utility reconnection fees, or mortgage payments, don’t count and are fully taxable if your employer covers them. Keep receipts for everything, as HMRC may ask for proof during an audit.
How Does the £8,000 Limit Work in Practice?
Now, let’s talk numbers. The £8,000 allowance is a per-person limit, not per household, which is great news if both you and your partner are relocating for work. If your employer reimburses more than £8,000, the excess is treated as a taxable benefit-in-kind. For example, if your employer covers £10,000 in relocation costs, the first £8,000 is tax-free, but the remaining £2,000 is added to your taxable income. You’ll pay income tax on this at your marginal rate (20%, 40%, or 45% for 2025-26) and your employer will owe Class 1A National Insurance Contributions (NICs) at 15% on the excess.
Here’s a quick table to show how this works for different income levels in 2025-26:
Income (£) | Tax Band | Tax Rate | Tax on £2,000 Excess | Employee’s Net Cost |
30,000 | Basic (20%) | 20% | £400 | £1,600 |
60,000 | Higher (40%) | 40% | £800 | £1,200 |
150,000 | Additional (45%) | 45% | £900 | £1,100 |
Source: HMRC Income Tax Rates 2025-26
This table assumes the employee pays tax on the £2,000 excess. If your employer “grosses up” the payment (covers the tax liability), you’d receive the full £2,000, but they’d pay more upfront—e.g., £2,941 for a 40% taxpayer to net £2,000 after tax.
Why Hasn’t the Allowance Increased Since 1993?
Now, you might be scratching your head wondering why £8,000 hasn’t budged in over three decades. Back in 1993, £8,000 could cover a significant chunk of moving costs, but with inflation and rising property prices, it’s less generous today. For context, £8,000 in 1993 is worth about £18,500 in 2025, based on Bank of England inflation calculations. HMRC’s reluctance to raise the limit stems from a focus on simplifying tax rules and avoiding frequent legislative changes. However, this static limit means high earners or those moving to expensive areas like London often face taxable excess costs, squeezing their net benefit.
For example, consider Aled, a marketing manager relocating from Cardiff to London in July 2025. His employer covers £12,000 in costs: £6,000 for movers, £3,000 for temporary accommodation, and £3,000 for legal fees. The first £8,000 is tax-free, but the £4,000 excess is taxed at Aled’s 40% higher rate, costing him £1,600 in tax. If his employer doesn’t gross up, Aled’s out-of-pocket cost reduces the benefit of the relocation package.
Key Deadlines and Compliance Rules for 2025-26
Be careful! Timing is everything with this allowance. Your employer must reimburse qualifying costs by 5 April of the tax year following your move. For a relocation in October 2025, that’s 5 April 2026. Miss this deadline, and the entire reimbursement becomes taxable, even if it’s under £8,000. Employers must also report any excess costs on a P11D form to HMRC, detailing taxable benefits. If you’re self-employed (e.g., a contractor with a limited company), you can claim the £8,000 as a business expense to reduce Corporation Tax, but anything above that is taxable and must be reported on a P11D.
Maximising the Relocation Income Tax Allowance in 2025-26
How Can You Make the Most of the £8,000 Allowance?
Now, if you’re planning a work-related move in 2025-26, you’ll want to squeeze every penny out of that £8,000 tax-free allowance. The key is strategic planning to ensure your qualifying costs stay within the limit and you avoid unexpected tax bills. Start by itemising every expense tied to your move—legal fees, moving vans, travel costs—and check them against HMRC’s list of qualifying costs (see Part 1). Prioritise high-value expenses like legal fees or professional movers, as these can quickly eat up the allowance. For instance, if you’re buying a new home, stamp duty and conveyancing fees can easily hit £5,000 in high-cost areas like London, leaving little room for other costs.
One clever trick is to negotiate with your employer to prioritise tax-free reimbursements. Let’s say your employer offers a £10,000 relocation package. Ask them to cover £8,000 in qualifying costs (e.g., movers and legal fees) and use the remaining £2,000 for non-qualifying costs like utility setup, which would be taxable anyway. This keeps your tax liability low. If your employer is flexible, they might even “gross up” any taxable excess, meaning they cover the tax on amounts over £8,000, so you don’t lose out.
What Are the Special Rules for Self-Employed Contractors?
Now, if you’re a self-employed contractor running a limited company, the relocation allowance works a bit differently. You can claim qualifying relocation costs as allowable business expenses, reducing your Corporation Tax liability (19% for small companies in 2025-26). However, the £8,000 tax-free limit still applies, and any excess is treated as a taxable benefit-in-kind, requiring you to report it via a P11D form. This can get tricky if you’re moving for a contract that’s outside IR35, as HMRC might scrutinise whether the move is “wholly and exclusively” for business purposes.
Consider Sioned, a freelance IT consultant relocating from Manchester to Bristol for a six-month contract in 2025. Her limited company pays £9,000 in qualifying costs: £5,000 for movers, £2,000 for temporary accommodation, and £2,000 for legal fees on a rental. The first £8,000 reduces her company’s taxable profit, saving £1,520 in Corporation Tax (19% of £8,000). The £1,000 excess is a benefit-in-kind, taxed at her personal income tax rate of 40%, costing £400. Sioned also needs to ensure her move meets HMRC’s “reasonable commuting distance” rule, as a temporary relocation might raise red flags if audited.
How Can You Avoid Common Pitfalls with the Allowance?
Be careful! The relocation allowance sounds straightforward, but it’s easy to trip up. One common mistake is assuming all moving costs qualify. For example, council tax, mortgage interest, or home decorating costs don’t count, and if your employer reimburses them, they’re fully taxable. Another pitfall is missing the deadline—costs must be reimbursed by 5 April of the following tax year. If your employer drags their feet, you could face a full tax bill on the reimbursement.
Another gotcha is failing to keep proper records. HMRC can request receipts or invoices during an audit, so store everything digitally or in a folder. If you’re self-employed, ensure your limited company’s accounts clearly separate qualifying and non-qualifying costs to avoid HMRC penalties. Finally, watch out for emergency tax codes. If your employer reports excess costs late, HMRC might apply an emergency tax code, overtaxing you until it’s corrected. Check your payslip and contact HMRC via their helpline (0300 200 3300) if you spot an error.
What Happens in International Relocations?
Now, if you’re moving to or from the UK for work, the rules get a bit more complex. The £8,000 allowance still applies, but international moves often involve higher costs, like visas or international shipping, which may or may not qualify. For example, shipping household goods from abroad counts, but visa fees or language lessons don’t. If you’re relocating to the UK, your employer can cover travel costs for you and your immediate family (spouse, civil partner, or children under 18), but only if the move meets the “reasonable commuting distance” test.
Take Owain, an engineer moving from Dublin to Glasgow in August 2025. His employer covers £15,000 in costs: £7,000 for shipping furniture, £3,000 for flights, and £5,000 for temporary accommodation. The first £8,000 (shipping and flights) is tax-free, but the £7,000 excess (accommodation) is taxed at Owain’s 40% rate, costing £2,800. If Owain’s employer grossed up the excess, they’d pay an extra £4,117 to cover his tax, leaving Owain with the full £15,000 benefit.
Here’s a table breaking down typical international relocation costs for 2025-26:
Cost Type | Qualifying? | Typical Amount (£) | Taxable if Over £8,000? |
Shipping household goods | Yes | 5,000–10,000 | Yes |
Flights for employee/family | Yes | 1,000–3,000 | Yes |
Temporary accommodation | Yes | 2,000–5,000 | Yes |
Visa fees | No | 500–2,000 | Always taxable |
Language lessons | No | 500–1,500 | Always taxable |
Source: HMRC EIM03107, verified October 2025
Step-by-Step Guide to Claiming the Allowance
So, how do you actually claim this allowance without messing it up? Here’s a practical guide for employees and contractors:
Confirm eligibility: Ensure your move is work-related and your new home is within a reasonable commuting distance from your workplace.
Track qualifying costs: Collect receipts for movers, legal fees, travel, etc., and verify they’re HMRC-approved (check GOV.UK’s EIM03107 guidance).
Negotiate with your employer: Ask them to prioritise qualifying costs within the £8,000 limit and clarify if they’ll gross up any excess.
Submit expenses promptly: Provide receipts to your employer before the tax year ends (5 April 2026 for 2025-26 moves).
Check your P11D: If your employer reports excess costs, ensure they’re correctly listed on your P11D form to avoid overtaxing.
Monitor your tax code: Use HMRC’s online tool (www.gov.uk/check-income-tax-current-year) to check for errors like emergency tax codes.
For contractors: Record qualifying costs in your limited company’s accounts and report any excess as a benefit-in-kind on your P11D.
How Can You Plan for Tax Efficiency?
Now, consider this: If your relocation costs exceed £8,000, you can still save tax by planning ahead. For employees, ask your employer to spread reimbursements across two tax years (e.g., £4,000 in 2025-26 and £4,000 in 2026-27) to stay under the limit each year, if HMRC allows it for your move. For contractors, consider paying some costs personally to avoid benefit-in-kind tax, then claim them as business expenses to reduce Corporation Tax. Always consult a tax advisor for complex moves, especially international ones, to ensure compliance and optimise savings.
Key Takeaways for Navigating the Relocation Income Tax Allowance
What Are the Most Critical Points to Remember?
Now, let’s wrap things up with the essential points you need to know about the Relocation Income Tax Allowance for 2025-26. These are the must-knows to ensure you’re maximising this tax relief while staying compliant with HMRC rules. Each point is distilled into a single sentence for clarity, covering the core insights for UK taxpayers and business owners.
The Relocation Income Tax Allowance lets employers cover up to £8,000 of qualifying relocation costs tax-free for employees or contractors moving their main residence for work in the 2025-26 tax year.
Qualifying costs include expenses like legal fees, moving costs, and travel, but only if incurred by 5 April of the following tax year (e.g., 5 April 2026 for a 2025 move).
Any reimbursement over £8,000 is taxed as a benefit-in-kind at your marginal income tax rate (20%, 40%, or 45%), with employers paying 15% Class 1A NICs on the excess.
Self-employed contractors can claim up to £8,000 as a business expense to reduce Corporation Tax, but excess costs are taxable and must be reported on a P11D form.
International relocations qualify for the allowance, but costs like visa fees or language lessons are non-qualifying and always taxable.
To avoid pitfalls, keep detailed receipts, submit expenses promptly, and check your P11D and tax code to prevent overtaxing or emergency tax codes.
Negotiating with your employer to prioritise qualifying costs within the £8,000 limit can minimise your tax liability.
The £8,000 limit, unchanged since 1993, is per person, not per household, benefiting dual-income couples relocating for work.
Timing is critical—costs must be reimbursed by the end of the following tax year, or the entire amount becomes taxable.
Use HMRC’s online tools (e.g., www.gov.uk/check-income-tax-current-year) to monitor your tax status and consult a tax advisor for complex moves to ensure compliance.
FAQs
Q1: Can relocation costs be claimed if the move is temporary?
A1: Temporary moves do not qualify for the Relocation Income Tax Allowance unless the new residence becomes the main home and meets the reasonable commuting distance rule.
Q2: Does the allowance apply to relocations within the same city?
A2: The allowance can apply to moves within the same city if the new home is significantly closer to the workplace and the old home was not within a reasonable commuting distance.
Q3: Can relocation costs be claimed if paid personally rather than reimbursed by an employer?
A3: Personal payments for relocation costs do not qualify for the tax-free allowance, as it only applies to employer reimbursements or payments.
Q4: Is the allowance available for moves to a second home?
A4: The allowance is not available for moves to a second home; the new property must become the main residence.
Q5: Can relocation costs be split between multiple employers?
A5: If multiple employers cover costs for the same relocation, the total tax-free allows
nce remains £8,000 per person, and they must coordinate to avoid exceeding the limit.
Q6: Does the allowance cover costs for relocating pets?
A6: Pet relocation costs, such as transport or quarantine fees, are not qualifying costs and are taxable if reimbursed by an employer.
Q7: Can the allowance be claimed for a move prompted by a promotion?
A7: A move due to a promotion qualifies if it requires changing the main residence to be within a reasonable commuting distance of the new workplace.
Q8: Are storage costs for household goods covered by the allowance?
A8: Storage costs for household goods during the relocation process can qualify if directly related to the move and deemed reasonable by HMRC.
Q9: Can the allowance be used for relocations due to remote working arrangements?
A9: Moves for remote working do not typically qualify unless the employee must attend a specific workplace regularly, meeting the commuting distance rule.
Q10: Does the allowance apply to civil partners or unmarried couples?
A10: Civil partners can claim the allowance separately if both relocate for work, but unmarried couples are treated as individuals, each eligible for £8,000 if qualifying.
Q11: Can relocation costs be claimed if the job ends shortly after the move?
A11: The allowance can still be claimed if the job ends soon after the move, provided the relocation was genuinely for work and met all eligibility criteria.
Q12: Are survey fees for a new home covered under the allowance?
A12: Survey fees for purchasing a new home qualify as acquisition costs and can be included in the £8,000 tax-free allowance.
Q13: Can the allowance be claimed for a move back to the original residence?
A13: A move back to the original residence may qualify if it’s for a new work-related reason and meets the reasonable commuting distance requirement.
Q14: Does the allowance cover costs for relocating adult children?
A14: Costs for relocating adult children (over 18) are not qualifying unless they are financially dependent and part of the household move.
Q15: Can relocation costs be claimed if the employer pays a third party directly?
A15: The allowance applies if the employer pays a third party (e.g., a moving company) directly, as long as the costs are qualifying and within the £8,000 limit.
Q16: Is the allowance affected by the employee’s tax status (e.g., non-domiciled)?
A16: Non-domiciled status does not affect eligibility for the allowance, but tax treatment of excess costs may vary based on the individual’s tax residency rules.
Q17: Can the allowance be claimed for costs incurred before starting the new job?
A17: Costs incurred before starting the new job can qualify if they are directly related to the relocation and the move meets HMRC’s eligibility criteria.
Q18: Are relocation bonuses taxable if separate from qualifying costs?
A18: Relocation bonuses or lump-sum payments not tied to qualifying costs are fully taxable as employment income, regardless of the £8,000 allowance.
Q19: Can the allowance be claimed for moves due to a change in work hours?
A19: A change in work hours alone does not qualify unless it necessitates a move to a new residence closer to the workplace for reasonable commuting.
Q20: Does the allowance apply to relocations for fixed-term contracts?
A20: Fixed-term contracts qualify for the allowance if the move changes the main residence to be within a reasonable commuting distance of the workplace.
About the Author
Mr. Maz Zaheer, FCA, AFA, MAAT, MBA, is the CEO and Chief Accountant of My Tax Accountant and Total Tax Accountants—two of the UK’s leading tax advisory firms. With over 14 years of hands-on experience in UK taxation, Maz is a seasoned expert in advising individuals, SMEs, and corporations on complex tax matters. A Fellow Chartered Accountant and a prolific tax writer, he is widely respected for simplifying intricate tax concepts through his popular articles. His professional insights empower UK taxpayers to navigate their financial obligations with clarity and confidence.
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