Relocation Expense Rules 2025/26
- Exempt limit: £8,000 per job move (not per year) — s.271 ITEPA 2003.
- Qualifying expenses: moving costs, house-hunting travel, temporary accommodation (up to 2 years), legal fees, estate agent fees, bridging loan interest, domestic goods replacement.
- Non-qualifying (always taxable): decoration costs, extensions, new furniture beyond replacement, personal costs unconnected to the move.
- Requirement: Employee must change principal home due to a job move; new home must be within reasonable distance of new workplace.
- Taxable excess: Income tax + Class 1 NIC (cash) or employer Class 1A NIC 13.8% (benefits in kind).
Relocation Allowance Calculator
Non-qualifying expenses are fully taxable with no £8,000 exemption. Qualifying expenses are exempt up to £8,000 per job move.
What Is the £8,000 Relocation Exemption?
Section 271 of the Income Tax (Earnings and Pensions) Act 2003 provides an exemption for qualifying relocation expenses and benefits paid by an employer, up to a limit of £8,000 per job move. This means that if an employer pays £8,000 or less in qualifying relocation costs, no income tax or NIC arises.
The £8,000 limit is per job move, not per tax year. An employee who changes jobs twice and relocates both times can potentially use the exemption twice. The clock typically starts from the employee's first day at the new location, and expenses generally need to be incurred within a relevant period (in practice, HMRC takes a reasonable view on timing).
The key requirement is that the relocation must be genuine — the employee must be required to move home because their old home is not within a reasonable commuting distance of the new workplace. A purely discretionary or personal move does not qualify.
Qualifying vs Non-Qualifying Expenses
| Expense type | Qualifying? | Notes |
|---|---|---|
| Removal and storage of household effects | Yes | Includes professional removal companies |
| Travel costs for house hunting | Yes | Reasonable number of trips |
| Temporary accommodation | Yes | Up to 2 years from date of move |
| Legal fees on sale of old home | Yes | Solicitor / conveyancing fees |
| Estate agent fees on old home | Yes | Sale costs only, not purchase |
| Legal fees on purchase of new home | Yes | Solicitor / conveyancing fees |
| Bridging loan interest | Yes | On a loan to bridge the old/new property gap |
| Replacement domestic goods | Yes | Replacing goods that cannot reasonably be moved |
| Decoration / renovation costs | No — always taxable | Not qualifying under ITEPA s.271 |
| Extensions / structural work | No — always taxable | Capital improvement, not relocation |
| New furniture beyond replacement | No — always taxable | Upgrading above existing level |
What Happens When Costs Exceed £8,000?
If qualifying relocation expenses exceed £8,000, the excess becomes a taxable benefit. The employer must report the excess on form P11D. The employee pays income tax on the excess via their tax code or self-assessment. If the expenses were paid in cash or reimbursed, employer and employee Class 1 NIC also apply; if provided as benefits in kind, the employer pays Class 1A NIC at 13.8%.
Non-qualifying expenses are taxable from the first pound — there is no partial relief. A decoration bill for £5,000 creates a £5,000 taxable benefit regardless of how much other qualifying expenditure was incurred or whether the £8,000 threshold was reached.
In practice, employers need to track qualifying and non-qualifying costs separately throughout the relocation process. A single relocation package invoice from a specialist firm may mix qualifying and non-qualifying items, requiring careful disaggregation.
Cash Allowance vs Expense Reimbursement
A common mistake is paying a flat cash relocation allowance rather than reimbursing specific qualifying expenses. A general lump-sum cash payment is treated as earnings and is fully taxable from the outset — it does not automatically qualify for the £8,000 exemption unless the employee can demonstrate it was used for qualifying expenses against receipts.
The safest approach is to pay qualifying expenses directly or to reimburse against itemised receipts. This creates a clear audit trail of qualifying costs and keeps the employer's position defensible if HMRC enquires. Many employers establish a relocation policy requiring receipts for all claims above a de minimis level.
Frequently Asked Questions
What is the £8,000 relocation exemption?
Under s.271 ITEPA 2003, the first £8,000 of qualifying relocation expenses paid or reimbursed by an employer is exempt from income tax and NIC. This limit applies per job move, not per year. If total qualifying expenses are £8,000 or less, no tax or NIC arises.
What qualifies as a relocation expense?
Qualifying expenses include: moving costs (removals, storage), travel costs (house hunting trips), temporary accommodation (up to 2 years), legal fees on sale and purchase, estate agent fees on the sale of the old home, bridging loan interest, and the cost of replacing domestic goods at the new home.
Does the employee have to actually move home?
The employee must relocate to a home that is within a reasonable distance of the new workplace, and the move must be required because the old home is not within a reasonable distance of the new workplace. HMRC does not specify an exact mileage but expects a genuine change of commutable distance.
Is the £8,000 limit per year or per job move?
It is per job move. If an employee relocates twice in two years (different job moves), they can potentially claim up to £8,000 exempt expenses for each relocation. The limit is not an annual allowance.
What expenses are NOT qualifying relocation expenses?
Non-qualifying expenses include: decoration and renovation of the new home, extensions or structural work, the cost of new furniture beyond replacing what was in the old home, and any costs that are personal in nature. These are always fully taxable with no £8,000 exemption.
What tax applies if relocation expenses exceed £8,000?
If qualifying relocation expenses paid by the employer exceed £8,000, the excess is a taxable benefit. The employee pays income tax on the excess at their marginal rate. If the expenses are paid as cash or reimbursement, Class 1 NIC also applies. If provided as benefits in kind, employer Class 1A NIC at 13.8% applies.
Does the exemption apply to both new jobs and internal relocations?
Yes. The exemption applies where an employee changes employer (new job) or where an existing employee is required to relocate due to a change in their place of work. A purely personal move unconnected to a job requirement does not qualify.
Can the employer pay expenses directly or must they reimburse the employee?
Both approaches are acceptable. The employer can pay suppliers directly (e.g., the removal company) or can reimburse the employee for costs already incurred. Both qualify for the exemption provided the costs are qualifying relocation expenses and the total does not exceed £8,000.
Is a cash relocation allowance the same as reimbursement?
No. A general cash relocation allowance (flat lump sum) is usually treated as earnings and fully taxable, unless the employee can show it was used for qualifying expenses against receipts. To secure the exemption, the employer should pay qualifying expenses directly or reimburse against receipts.
Can I claim the exemption for estate agent fees on the old home?
Yes. Estate agent fees on the sale of the employee's former home are a qualifying relocation expense. They can be included in the £8,000 exempt total along with other qualifying costs such as solicitor fees, removal costs, and temporary accommodation.
What about stamp duty on the new home?
Stamp Duty Land Tax is not specifically listed in the qualifying expenses, but legal and conveyancing costs on the purchase are qualifying. Employers and employees should check the latest HMRC guidance as treatment may vary. Legal fees on the purchase are clearly qualifying; the SDLT itself is less certain.
How does the employer report relocation benefits on P11D?
Qualifying relocation expenses up to £8,000 are exempt and do not need to be reported on P11D. Any excess above £8,000 is a reportable taxable benefit. Non-qualifying expenses are also taxable and reportable. The employer pays Class 1A NIC on the total taxable amount.