Is a relocation package from my employer fully taxable?

Full answer

When an employer helps fund an employee's move to a new home because of a job change, promotion, or transfer, a specific HMRC exemption -- often called the £8,000 relocation exemption -- allows a meaningful amount of that support to be provided tax-free, provided strict conditions are met. **The £8,000 tax-free limit** An employer can pay or reimburse up to £8,000 of qualifying relocation expenses and benefits for a single qualifying move, completely free of Income Tax and National Insurance for the employee. This is a cumulative limit across all qualifying relocation costs for that move, not a separate £8,000 allowance for each individual cost category. **What counts as a qualifying move** To qualify for the exemption at all, the move must result from a genuine change in the employee's workplace (for example, a new job, an internal transfer, or a significant change in the location of their existing job) that makes their previous home an unreasonable daily commuting distance from the new workplace, and the new home must become the employee's only or main residence. **What qualifying costs typically include** - Costs of selling the old home (estate agent and legal fees, some disconnection costs). - Costs of buying the new home (legal fees, Stamp Duty Land Tax, survey fees, and connection charges for services). - Removal costs (professional removal firm fees, storage of belongings for a limited period). - Travel and subsistence costs directly related to the move (for example, a limited period of temporary accommodation or travel while house-hunting or before the family relocates). - Certain bridging loan interest, within limits, where the employee needs short-term finance to complete the move. **What does NOT qualify** General compensation for a higher cost of living in the new area, an uplift to salary to reflect regional pay differences, or a lump sum paid with no direct link to actual relocation costs, does not qualify for the exemption and is fully taxable as ordinary pay. Costs unrelated to a genuine change of main residence (for example, helping fund a second home rather than a move of main residence) also fall outside the exemption. **Tax treatment above £8,000** Any qualifying relocation costs paid by the employer above the £8,000 threshold are treated as a taxable benefit in kind, reported on the employee's P11D (or payrolled, if the employer has registered to payroll benefits), and subject to Income Tax at the employee's marginal rate, with the employer paying Class 1A National Insurance on the taxable excess. Similarly, any non-qualifying relocation-related payment, however described, is taxable in full from the first pound, not just above £8,000. **Worked example** An employer pays £11,000 of genuine, qualifying relocation costs to help an employee move for an internal transfer to a new office 150 miles away, covering estate agent fees, removal costs, SDLT on the new home, and some temporary accommodation. The first £8,000 is entirely tax-free. The remaining £3,000 is a taxable benefit in kind: it is added to the employee's income for Income Tax purposes at their marginal rate, and the employer pays Class 1A National Insurance (15%) on that £3,000 excess.

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