By Daniel Hunter

The tax exempt relocation allowance for employees relocating in the course of their job is now worth only a fraction of its original value following successive Governments’ failure to raise it in line with inflation over the past 20 years, says Wilkins Kennedy, the Top 20 accountancy firm.

The relocation allowance, now worth only 57% of its original value, makes the first £8,000 of any relocation allowance paid by a company in respect of a work related move tax free. It was introduced in April 1993.

According to Wilkins Kennedy, if the allowance had risen in line with inflation, it should now be £13,800.

When an employer asks a staff member to relocate, or an employee relocates to start a new job with them, they often reimburse expenses related to buying a new home, paying removals companies, replacing domestic goods, and also interest payments on bridging loans.

Wilkins Kennedy says that some tax reliefs have not been raised for decades, turning them into what some might see as a lucrative stealth tax for the Government. In addition to employee’s income tax on any amount over £8,000, both the employee and employer will also have to pay National Insurance.

Wilkins Kennedy adds that the relocation allowance could be quickly dwarfed by the cost of relocating to major employment centres in London and the South East. For example, the average stamp duty payable on a London home is now £13,649.

The relocation tax exemption supports flexibility and mobility in the labour market, making it important to maintain its value in line with inflation.

“A reasonable relocation tax allowance is important because it encourages flexibility in the workforce, helping employers to relocate staff for example if they are restructuring or moving to a lower cost location," Peter Goodman, Partner at the firm said.

“Employees that are offered a new role or are required to move can do so with the assurance that the costs they will incur will at least be partly offset. Otherwise it can be difficult for employers to get the staff they need in the locations they need them.

“With increasing globalisation and competition between countries to attract business, having a reasonable tax free relocation allowance all helps in attracting international talent and companies to the UK. This is particularly the case for employees on assignment or secondment to the UK.

“For lower wage employees in particular, the costs of relocating can be prohibitive. If they can’t afford to move, they might even be forced to take redundancy instead.

“Of course it also means that the unemployed are less likely to be able to relocate to pursue a new job.”

Wilkins Kennedy adds that the relocation allowance is especially important when relocating to a major City like London. This is because stamp duty charges for buying a home are almost double the current value of the allowance at £13,649, as the average house price costing over £450,000.

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