Moving from one country to another is an expensive affair. There isn’t a fixed price that can be placed on transporting your entire life to a completely new place. But, if you’re moving to the UK for a new job, you might be entitled to some financial help from your British employer.
Relocation allowances can be a good financial cushion when you’re getting settled in your new home, but are they completely free? In the UK, some parts of your relocation package may be tax-free, up to a certain amount, while some costs directly related to your move, like transport and temporary accommodation, may be exempt from taxes.
In this article, we’ll go over what expenses covered by your relocation package are deductibles and what expenses you can expect to be taxed. So, let’s get right into it!
Taxation of Relocation Packages in the UK
Your relocation package might cover a range of costs when you’re moving, and the UK tax system recognises this. There’s something called ‘qualifying costs‘, which are essentially expenses that are considered necessary for your move. Think along the lines of removal fees, travel costs for you and your family, and temporary accommodation when you first land. These costs are generally tax-free up to a certain limit – which is a bit of good news for your wallet.
On the other hand, there are ‘non-qualifying costs‘, which are a different kettle of fish. We’re talking about things like job-finding assistance for your partner or any ‘welcome to the neighbourhood’ type gifts that your employer might throw in. These items are seen as benefits, and they’re going to be subject to tax.
Here’s a number that you’ll want to remember: £8,000. That’s the tax-free allowance the UK tax system generously provides for relocation-related expenses. This means that if your employer coughs up for moving costs up to this amount, you won’t have to pay a penny of tax on it. Such a relief, right?
But remember, this allowance only covers qualifying costs. So, you’ll need to keep a keen eye on what you’re spending and ensure it falls within this bracket. If your employer pays more than £8,000, or if the expenses are on the non-qualifying list, then you’ll need to consider tax.
Taxable Benefits in Detail
Learning the tax system of a new country is already a complicated affair. If you add figuring out which moving expenses are taxable and which are not can certainly be headache-inducing.
Still, these are things you have to know if you want to stay on the good side of the HM Revenue and Customs. Typically, your employer may cover the expense like:
- Temporary Accommodation. It’s important to know that this financial support is often considered a taxable benefit if it extends beyond a certain period – usually around three months. After that, you might find the extra support added to your taxable income, which could bump you up to a higher tax bracket.
- Transport Expenses. If you’re hiring professional movers, the cost of their services will likely be covered by your relocation package. However, the tax treatment of these costs can vary. Transporting your personal belongings to your new home in the UK is generally covered tax-free, but again, there are limits. Keep all receipts and check with tax professionals to ensure you’re not caught off guard by unexpected tax bills.
- Property-Related Costs. If you’re selling your old home, some of the expenses may be deductible but don’t assume all your costs will escape the taxman’s scrutiny. On the flip side, if you’re buying or renting a new place, expenses like stamp duty or agency fees might not be covered by your allowance at all, and if they are, they’re likely taxable.
- Other Taxable Benefits. Area orientation tours and travel expenses for house hunting trips might feel like a nice bonus from your employer, but these can count as taxable income, too. It’s not just about the cost of a plane ticket or a day out with a local guide; the tax implications can add up, so budget accordingly.
How to Report Relocation Expenses
Now, when you’re getting your ducks in a row for the big move, one of the key things you need to get your head around is how to report your relocation expenses properly.
If your employer is footing the bill for your move, they’ve got to report the costs to HM Revenue & Customs (HMRC) and sort out the right amount of tax. It’s not the most thrilling of tasks, but it’s necessary to avoid any tax hiccups later on. They should provide you with a breakdown of what’s been paid on your behalf and what’s considered a taxable benefit. Yes, I’m afraid some of that moving support might count as a perk in the eyes of the tax folks.
You have to keep a clear record of all your moving expenses. I’m talking receipts, invoices, and any documentation of payments made during the moving process. Also, get familiar with your tax code, as it determines how much tax you pay, and you don’t want to be on the wrong code with too much or too little being deducted from your wages. If you’re not sure about it, there’s no harm in getting on the blower to HMRC or seeking advice from a tax professional.
Final Thoughts
As you can see, relocation packages might come with some tax implications in the UK. Remember, if your employer is covering your moving costs, parts of this could be tax-free up to a certain amount, but always check what qualifies.
Every family’s situation is different, and yours will have its unique twists and turns. Don’t hesitate to get in touch with a tax pro who can give advice tailored to your needs. Moving your family is a big step, but with the right info and support, you can sort the tax side of things and focus on settling into your new life.
