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HMRC internal manual

Employment Income Manual

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HM Revenue & Customs
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Removal or transfer costs: expenses and benefits: main conditions for exemption

Section 273 ITEPA 2003

To qualify for the £8,000 exemption the removal expenses and benefits must be expenses and benefits that fall within Section 272(1) ITEPA 2003 or bridging loan expenses within Section 284 ITEPA 2003 (see EIM03108) and must also satisfy a number of conditions.

Change of main residence

The most important condition is that the employee must change his or her main residence as a result of one of the following employment changes:

  • starting a new employment, or
  • a change of the duties of his or her employment, or
  • a change of the place where the duties are normally performed.

If you are unsure whether the employee has changed his or her main residence consider the following:

  • It does not have to be a property chosen as the main residence for capital gains tax purposes
  • It does not have to be owner- occupied property; a rented property may be the employees main residence
  • Normally it would be the property that is the employee’s family home for most of the time
  • It would be where friends and correspondents would expect to find the employee’s family

 Where an employee comes to the UK from abroad you can usually accept that the main residence has changed if the employee has become resident in the UK for tax purposes.

It is the facts of the case that need to be considered when deciding whether the employee has changed his or her residence.

It is not necessary for the employee to dispose of the old residence in order to qualify for the exemption. However there must be a change of his or her main residence. If are location is cancelled, so that the employee does not in fact change his or her main residence any expenses paid or reimbursed or benefits provided in connection with the cancelled relocation will be taxable.

Reasonable daily travelling distance

The new residence must be within reasonable daily travelling distance of the new normal place of work. The old residence must not be within reasonable daily travelling distance of the new normal place of work.

Reasonable daily travelling distance is not defined in the legislation. You should apply common sense and take account of local conditions. The usual time taken to travel a given distance is an indication of whether that distance is reasonable. Employees in the London area, for example, commonly travel much greater distances, or take longer to travel the same distance, to work than those in other parts of the UK. You should bear in mind that employers will not normally pay for employees to move to places that are not convenient for the place of work.

Time limit

In order to qualify for exemption the removal expenses must be incurred or the removal benefits provided before the last day of the year of assessment following the one in which the employee starts the new job. This day is known as the limitation day (Section 274 ITEPA 2003). It does not matter when the employee moves to his or her new home.

Example 1

An employee takes up a new employment on 1 March 2003. If his employer reimburses removal expenses incurred by 5 April 2004 or provides removal benefits up to 5 April 2004 these may qualify for exemption.

Example 2

An employee moves to a different post with the same employer on 1 May 2003. If her employer reimburses removal expenses incurred by 5 April 2005 or provides removal benefits up to 5 April 2005 these may qualify for exemption.

See EIM03105 for extension of the time limit.