Relocation Allowance Tax Exemption: The £8,000 Limit Explained (2026/27)
Employers can pay up to £8,000 of qualifying relocation costs tax-free when you move for a new job. Go a penny over, and the whole excess is taxed as employment income. Here is what qualifies.
What the Relocation Exemption Covers
When an employee moves home because of a new job, a change of job with the same employer, or a significant change to their normal place of work, an employer can contribute towards the costs of that move. HMRC allows up to £8,000 of "qualifying" relocation expenses and benefits to be provided free of income tax and National Insurance.
This is a long-standing statutory exemption designed to stop relocation support being taxed as if it were simply extra salary, provided the costs are genuinely relocation-related and fall within defined categories.
What Counts as "Qualifying" Relocation Expenses
| Category | Examples |
|---|---|
| Disposal costs (selling old home) | Estate agent fees, legal/conveyancing fees, costs of ending a tenancy |
| Acquisition costs (buying new home) | Legal fees, Stamp Duty Land Tax (or LBTT/LTT), survey and valuation fees, Land Registry fees |
| Transport of belongings | Removal firm costs, storage costs (within limits) |
| Travel and subsistence | Costs of travelling to view properties, temporary accommodation while relocating, subsistence during the move |
| Bridging loan costs | Interest costs of bridging finance, in specific circumstances, within the exemption |
| Replacement domestic items | Costs of new items needed because old ones don't fit/suit the new property (e.g., carpets, curtains cut to different room sizes) |
What Falls Outside the Exemption Entirely
Some costs employers might associate with relocation support don't qualify at all, meaning they're taxable from the first pound, separate from whether the £8,000 limit has been used:
- Mortgage interest subsidies or compensation for a higher mortgage rate on the new property.
- General "disturbance allowances" not tied to a specific qualifying cost.
- Costs of buying/selling that HMRC considers unreasonably high compared to a typical equivalent transaction.
- Costs unrelated to a genuine change of residence connected to employment (e.g., costs of an investment property purchase).
Worked Example
| Scenario | Amount | Tax treatment |
|---|---|---|
| Estate agent + legal fees selling old home | £3,000 | Qualifying |
| Legal fees + SDLT on new home | £4,500 | Qualifying |
| Removal company | £1,200 | Qualifying |
| Total qualifying costs | £8,700 | First £8,000 tax-free, £700 taxable |
| Mortgage rate subsidy paid by employer | £2,000 | Non-qualifying — fully taxable regardless of the £8,000 limit |
In this example, the employee has £700 of qualifying costs above the exemption limit taxed as employment income, plus the full £2,000 mortgage subsidy taxed separately as it doesn't qualify at all — a total of £2,700 added to taxable income, even though total employer support was £10,700.
Per Move, Not Per Tax Year
A common misunderstanding is assuming the £8,000 limit resets each tax year. It does not — the exemption applies to the relocation as a whole. If costs are incurred across two tax years (for example, selling costs in March and buying/removal costs in the following April), the combined qualifying costs for that single move are still capped at £8,000 total, not £8,000 per tax year in which costs happen to fall.
How Excess Amounts Are Taxed
| How the benefit is provided | How the taxable excess is reported |
|---|---|
| Employer pays supplier directly (benefit-in-kind) | Reported on form P11D (or payrolled benefits, if the employer uses that system), subject to Class 1A employer NI |
| Employer reimburses the employee | Generally processed through payroll as additional taxable pay for the excess amount, subject to PAYE income tax and Class 1 NI |
Employers must track qualifying relocation costs carefully against the £8,000 limit and correctly categorise each cost as qualifying or non-qualifying — errors here are a common source of PAYE compliance issues at year-end.
Practical Tips for Employees
- Ask your employer/HR how your relocation package is being categorised for tax purposes before assuming it's entirely tax-free.
- Keep your own records of costs incurred, in case of any dispute about qualifying categories.
- If your relocation package includes a mortgage subsidy or general disturbance payment, expect that portion to be taxed regardless of the £8,000 exemption on your other qualifying costs.
- If your move spans two tax years, don't assume you get a fresh £8,000 allowance in the second year — the limit is per move.
Frequently asked questions
Related reading
Umbrella Company Deductions UK 2026: What You Should and Should Not Pay
Umbrella companies deduct PAYE, NI, and a margin fee before paying contractors. But some umbrella schemes make deductions that are unlawful. Here is what is legitimate, what is not, and how HMRC is cracking down in 2026.
Agency Nurse Tax and IR35 UK 2026: PAYE, Umbrella, or Limited Company?
Most agency nursing work is taxed via PAYE or an umbrella company, and NHS-facing agency roles are almost always treated as inside IR35, meaning limited company working rarely delivers the tax savings some nurses expect. Here is the 2026 breakdown.
Armed Forces Reservist Pay and Tax UK 2026/27
Reservist training pay and mobilisation pay are both taxable, but a reservist's civilian employer receives compensation for their absence, and specific NI rules apply during mobilisation. Here is how reservist pay and tax work in 2026/27.