Moving expenses are not tax deductible. But if your employer contributes towards your relocation costs, you may not have to pay tax on them. This is called a relocation allowance.
Here's a look at how it works and what conditions you need to meet to benefit from it.
When are moving expenses exempt from tax?
You won't pay tax on moving expenses if you meet all four of the following conditions:
- You relocated because you changed your job, because you've been transferred or because your employer moved the business to a new location.
- Your employer paid or reimbursed you for eligible expenses (more on this later).
- You include the costs on your tax return within a year from the end of the tax year in which your circumstances changed. So, if you relocated in September 2017, you have until 4 April 2019 to include them in your tax return.
- Your old home isn't within reasonable commutable distance from work, but your new home is.
What does relocation mean?
The HMRC considers you to have relocated if you've changed your main residence. This is the place where you and your family spend the majority of your time on a permanent basis.That said, you don't have to sell your old home (or end your lease) to qualify.
Example 1
You stay in your new home during the week and return to your old residence most weekends. Your family don't move with you.In this case, HMRC will probably consider you to have NOT changed your main residence. Which means you won't qualify for a relocation allowance.
Example 2
You move into your new home together with your family and spend most of your time there. You also keep your old home and go back to it periodically, for example for a weekend break.HMRC will probably consider you to have changed your main residence, and you'll qualify for a relocation allowance. This means you can deduct moving expenses from your tax bill.
What is a reasonable commutable distance?
The law doesn't specify what is reasonable. HMRC determines this on a case-by-case basis based on:
- How much time it takes to travel from home to your main place of work.
- The total distance you need to cover.
- The amount of inconvenience caused.
- Typical local conditions. So, for instance, a commute could be reasonable in London but not in Wolverhampton, because Londoners typically have longer commutes.
Which moving expenses can I claim?
You can claim moving expenses up to £8,000.It's also important to understand that the relocation allowance is a tax exemption, not a tax deduction. This means it only applies to what your employer actually contributes. So, if your employer pays £4,000, only that amount will be tax-free. You cannot claim the remaining £4,000 on your tax return.HMRC has detailed guidance on which expenses you can or cannot claim.
Which moving expenses can't I claim?
Unfortunately, not all your moving expenses are tax free. The following don't count towards the relocation allowance:
- Any costs you incur after you reach the £8,000 limit.
- Compensation for any losses, for example, because you sold your home for less than market value.
- Council Tax due on your old home while it’s empty.
- The cost of redirecting your mail.
Relocating for work can be equal parts exciting, stressful and expensive.Luckily, the relocation allowance allows you to cut at least some of your moving expenses from your tax bill. Which means you can worry less about money and enjoy more of the excitement.
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