Relocation Expenses Tax UK 2026/27: The £8,000 Exemption

An employer can pay or reimburse some relocation costs without creating a taxable benefit. The exemption is not a blanket “relocation allowance”: the move must be connected with a qualifying employment change, the costs must fall within the permitted categories, the new home must meet the workplace-distance condition, and the costs must be provided within the statutory time limit.

For 2026/27, qualifying relocation expenses and benefits can generally be exempt up to a total of £8,000. Qualifying costs above £8,000 are normally taxable, and non-qualifying costs can be taxable in full. HMRC's rules distinguish between the employee's personal move, the employer's payment method and the legal category of the cost, so a lump-sum relocation payment is not automatically tax-free.

What counts as a qualifying relocation?

The move must result from one of the relevant employment changes:

• starting a new employment;
• changing the duties of an existing employment; or
• changing the place where the employment duties are normally performed.

The employee must change their main residence because of that employment change. Moving closer to work for personal convenience, without a qualifying employment reason, does not meet the test simply because the employer pays the bill. An employee coming to the UK from abroad may need to examine the residence and employment facts separately; the tax result is not determined only by the fact that the employer offered a relocation package.

The new home must be reasonably close to the new workplace, while the old home must not have been reasonably close. “Reasonably close” is a facts-and-circumstances test, not a universal mileage figure. Keep the old and new addresses, job-change date, workplace details and evidence of the move so payroll can explain the decision if asked.

Which costs can fall within the £8,000 exemption?

HMRC's qualifying categories can include costs connected with buying or selling a home, moving belongings, certain items for the new home, travel and temporary accommodation, and a qualifying bridging loan. The exact statutory categories matter: a cost that feels connected with a move is not necessarily an exempt removal expense.

This table is a screening tool, not a complete statutory list. Ask the employer which HMRC category each invoice falls into. A relocation provider's package may bundle qualifying and non-qualifying services, so payroll should not simply apply the £8,000 cap to the total without separating them.

How the £8,000 limit works

The limit applies to the total of qualifying relocation expenses and benefits for the employee's relocation. It is not £8,000 for each invoice, each family member or each type of cost. If qualifying costs total £7,600, the qualifying amount can generally be exempt, provided all other conditions are met. If they total £10,500, the first £8,000 may be exempt and the remaining £2,500 is normally taxable.

Example: qualifying costs below the cap

Example: qualifying costs above the cap

If the same employee has qualifying costs of £10,000, the amount above the exemption is £2,000. HMRC says qualifying costs over £8,000 must be reported and taxed; the employer also needs to apply the relevant National Insurance reporting treatment.

Do not confuse the £8,000 exemption with a salary sacrifice or cash allowance. If the employer pays a round sum and the employee uses it for a mixture of moving costs, the employer must establish what was actually provided and whether each item qualifies. A cash payment that is not a reimbursement of qualifying costs can follow ordinary earnings rules.

The time limit

Qualifying costs generally need to be incurred, or the benefits provided, before the end of the tax year after the one in which the employee starts the new job. For a job beginning during 2026/27, this normally means the deadline is 5 April 2028, subject to the detailed statutory conditions and any permitted extension.

The start date is therefore important. Keep records of the employment start or transfer date, each invoice date, the date a benefit was provided and the date the employee moved their main residence. A cost that would otherwise qualify can become taxable if it is paid or provided too late.

If the relocation is cancelled and the employee does not actually change their main residence, HMRC guidance indicates that the associated payments and benefits can become taxable. Tell payroll if the move, job or workplace arrangement changes before the package is closed.

How taxable relocation benefits are reported

For qualifying costs within £8,000, the employer generally does not need to report or deduct tax and National Insurance. For qualifying costs above the limit, HMRC says the employer reports the excess on form P11D and pays Class 1A National Insurance on the taxable amount.

Non-qualifying benefits have their own reporting route. If the employer arranges and pays a non-qualifying benefit directly, it may be reported on a P11D with Class 1A National Insurance. If the employee arranges the benefit and the employer pays the supplier, the amount can be added to earnings with Class 1 National Insurance through payroll. Reimbursed non-qualifying expenses can be treated as earnings with PAYE and Class 1 National Insurance.

The employer's method matters, so do not infer the tax treatment from whether the money arrived as a separate “relocation allowance” line on the payslip.

Relocation from abroad or to another UK region

An employee moving from overseas may meet the employment-change and main-residence conditions, but the employer still needs to identify qualifying costs and apply the time limit. Immigration costs, school fees, flights for family members and temporary accommodation should be checked individually; “international relocation” is not a separate blanket exemption.

The same principle applies within the UK. A transfer from Manchester to London, or a new job in another region, may qualify if the employee changes their main residence because of the employment move. The distance and main-residence tests remain relevant, and the employer should retain evidence rather than relying on the relocation policy label.

Employee checklist

Use the UK Salary Calculator→ to illustrate the marginal Income Tax effect of a taxable relocation benefit, but enter only the taxable amount reported by payroll, not the full relocation package.

Build the employer relocation evidence file

The employer should keep a schedule for every employee showing the old and new workplace, the move or transfer date, the date the main residence changed, each cost, supplier, invoice date, payment method, qualifying category and cumulative total. A receipt alone may not show why the cost was incurred or whether it was provided within the statutory time limit. Link the schedule to the offer letter, relocation policy, payroll entry and P11D or PAYE decision.

Separate direct employer payments, employee reimbursements, salary-sacrifice arrangements and round-sum allowances. The same commercial cost can have a different reporting result depending on how it is provided. If a relocation package includes temporary accommodation, travel, storage, legal fees or estate-agent costs, classify each item rather than applying the exemption to the whole package. Mark costs that are excluded, duplicated, refunded or paid after the permitted period.

When the package approaches £8,000, have payroll and the employee review the running total before another invoice is approved. If the move is cancelled, the employee does not change their main residence, or the workplace arrangement changes, recalculate the package and preserve the original and revised decisions. The employer should not wait for a P11D deadline to discover that a benefit should have been processed through payroll.

Frequently Asked Questions

For wider residence and arrival issues, read Coming to the UK Tax Guide 2026/27. For a separate employer loan benefit, see Beneficial Loan Tax UK 2026/27.

Official sources

• HMRC: Relocation costs — what you do not have to report
• HMRC: Relocation costs — what to report and pay
• HMRC: Relocation costs — work out the value
• HMRC Employment Income Manual: Main conditions for removal costs
• HMRC: 2026 to 2027 employer PAYE and National Insurance guide