This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies. To find out more about cookies on this website and how to delete cookies, see our Cookie Policy.
Analytics

Tools which collect anonymous data to enable us to see how visitors use our site and how it performs. We use this to improve our products, services and user experience.

Essential

Tools that enable essential services and functionality, including identity verification, service continuity and site security.

Where Taxpayers and Advisers Meet

International relocation - Allowance

Rizvanovic
Posts:2
Joined:Mon Jun 21, 2021 2:34 pm
International relocation - Allowance

Postby Rizvanovic » Mon Jun 21, 2021 2:44 pm

Hi,

I moved to the UK from abroad 3 years ago on secondment and have now been offered a permanent role in the UK by my employer. As part of the package offered to me, there is a significant component of Relocation Allowance included which will be paid by my employer after I purchase a house here in the UK but within one year. This allowance once paid out will push me into the higher or additional income tax bracket resulting in a major proportion of the relocation assistance being paid out as income tax. Is there an established legal methodology to reduce my tax liability for this One-Off Relocation Allowance?

Thanks in advance.

Riz

strawn
Posts:96
Joined:Fri Jun 01, 2012 10:11 am

Re: International relocation - Allowance

Postby strawn » Mon Jun 21, 2021 9:50 pm

A common technique is to contribute enough to a pension to avoid higher rates of tax but that would mean not having the money available to put towards house purchase.

I wonder: could the firm pay you severance pay for losing your existing job and then you work for them as a contractor i.e. you set up your own company? The first £30k of severance pay is typically tax-free.

These are an amateur's guesses. I hope a pro will come along soon.

Rizvanovic
Posts:2
Joined:Mon Jun 21, 2021 2:34 pm

Re: International relocation - Allowance

Postby Rizvanovic » Tue Jun 22, 2021 8:22 am

Thanks for the reply Strawn. Since the relocation allowance will be paid after the house purchase, it will not contribute to my actual house purchase itself. I have an alternate source for the deposit and so I will explore the pension contribution option suggested by you further. Cheers.

iwmtaxadvisor
Posts:45
Joined:Wed Sep 09, 2020 5:12 pm
Contact:

Re: International relocation - Allowance

Postby iwmtaxadvisor » Mon Jul 05, 2021 10:16 am

Perhaps some good news. Some relocation costs are exempt from the need for the employer to report and are tax free. But there is a timing issue - see "the costs are paid before the end of the tax year that’s after the one in which the employee started their job" at https://www.gov.uk/expenses-and-benefits-relocation/whats-exempt

I think many?/some tax people working with pensions for cross border clients would question the bland statement that UK pensions are always tax effective. Even 25 years ago when the FCA first published their sponsored research report on ISAs vs Pensions there was only a light advantage to the pension for higher rate tax payers and then only if you could be reasonably assured of a lower tax rate in retirement than at the point of claiming relief. Yes you get tax relief now, but you pay tax later. It's worth checking out the numbers with a financial model. The main advantage with UK company pensions is to secure extra (sometimes matching) company contributions. In this case, one might talk to the HR team about salary sacrifice to save on NI, after checking out the above, and negotiate for a higher amount going into the pension than they would have paid you net in salary.

If one was advising, one might also, for personal claims on the tax return,
a) wonder if there was scope to have any overseas duties paid overseas, for less overall tax.
b) wonder about travel costs in the years prior to arrival https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim03116
c) wonder about travelling expenses after arrival https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim35060
Robert Warren
Book a free meeting


Return to “Income Tax”