Misc Relocation Payment - Tax Considerations

As part of my relocation package I am being given a 10K USD misc payment. The amount is being paid direct to me by the relocation provider. They are not going to withold taxes from it. I obviously, I will owe taxes on it. My question is what is the best way for me to handle the payment. Are there different tax implications if I have it paid to my US versus my UK bank account or vice verse. Is there any implications or benefits of doing this any specific way? Hoping to understand all of this tax stuff in more detail soon.?

For purposes of UK income tax, I would recommend you have the money paid to you in the US; that way you have the option of using the Remittance Basis to shield the payment from UK taxes. The critical thing is that the payment must never touch the UK banking system - this means that you must not transfer any funds or even use a US credit card paid using those earnings in the UK.

For purposes of US income tax, there is no distinction made on the basis of where the money was paid to you, and it will always need to be included in your worldwide income. The critical factor is how you earned the money - i.e. was it earned for services performed in the US or in a foreign country. I am not an expert but I would say your relocation payment constitutes foreign earnings and thus you can use the foreign earned income exclusion or the foreign tax credit to reduce or eliminate your US tax liability on this income. There are loads of past forum threads on these tax topics so please have a read through.

As part of my relocation package I am being given a 10K USD misc payment. The amount is being paid direct to me by the relocation provider. They are not going to withold taxes from it. I obviously, I will owe taxes on it. My question is what is the best way for me to handle the payment. Are there different tax implications if I have it paid to my US versus my UK bank account or vice verse. Is there any implications or benefits of doing this any specific way? Hoping to understand all of this tax stuff in more detail soon.?

I think you may find your employer will gross this up for UK tax and NIC as it will be fully taxable in the UK given that it relates to work to be done in the UK.

You should ask your employer if it is to be grossed up, so you receive it net of PAYE.

Thank you for all the responses so far. Unfortunately, no gross up on the payment and no withholdings. They hand you a lump some and leave you with the baggage of dealing with it. Not that I am complaining. I solely want to make the best decision to avoid being over taxed on it. I am interested in the remittance comments made by politicfool. Any other ideas thoughts or resources to research our welcomed. I think i need to make a decision in the next few days.

There are some past forum threads on the Remittance Basis. Here is the relevant page from HMRC: http://www.hmrc.gov.uk/migrantworkers/tax-non-uk.htm

I'm not saying the Remittance Basis is necessarily the best option for you, but if you have the money paid to you in the US and leave it in the US, at least you'll retain that option. When UK tax time comes you'd then need to calculate your total tax liability under either the Arising Basis or Remittance Basis and decide which is more advantageous for you.

I cannot see that the remittance basis is in point at all.  This appears to be a payment for relocation to the UK and taxable as employment income in the UK.  The employer may well be penalised for failure to operate PAYE so their idea that they can make a payment without withholding PAYE is decidedly unconventional.

You might ask your employer to share their accountants advice with you confiirming that PAYE is not required, since hopefully they have such advice in writing.

I cannot see that the remittance basis is in point at all.  This appears to be a payment for relocation to the UK and taxable as employment income in the UK.  The employer may well be penalised for failure to operate PAYE so their idea that they can make a payment without withholding PAYE is decidedly unconventional.

You might ask your employer to share their accountants advice with you confiirming that PAYE is not required, since hopefully they have such advice in writing.

@guya, I stand corrected - yes upon reviewing the HMRC guidance, it appears that the remittance basis only applies if the payment was in connection with services performed outside the UK.

Unless (perhaps) - the OP's employer has a dual contract arrangement such as that described here - http://www.hmrc.gov.uk/manuals/eimanual/EIM40103.htm.

If it doesn't make any difference from a tax perspective, then it really just comes down to where the OP is planning to spend the money and whether the exchange rate to be applied if the payment is converted into sterling seems advantageous. Those are not tax factors though.

Not sure if this matters to the OP, but I have actually come across an exemption for certain relocation payments.

From http://www.hmrc.gov.uk/guidance/relocation.htm:

If your employer helps you to move home because of your job, any payments you receive, or any goods or services provided for you, are treated as part of your earnings for tax and NICs purposes. However, the first £8,000 of any help you get from your employer is exempt from tax and NICs as long as certain conditions are met.

You can qualify for the exemption if

    you have to move home to
    - take up a new job with a new employer
    - take up a new job with your existing employer
    - continue your current job but at a new location
    your existing home is not within reasonable daily travelling distance of your new workplace
    the home you move to is within reasonable daily travelling distance of your new workplace
    your employer reimburses your expenses.

But, if your employer pays you a sum of money that you can use as you wish, no exemption will be available. The full amount would be chargeable to tax and NICs.