Service Personnel Tax Reliefs 2026/27: LSA, Operational Allowance, EFE

UK Service personnel benefit from a small number of dedicated tax reliefs and concessions that reflect the unique demands of military service. This guide covers the principal reliefs available for 2026/27 - Operational Allowance, LSA, GYH Travel, the Endorsed Family Education (EFE) concession, and the Forces Special Expenses (FSE) deduction - and how each interacts with the Service person's tax position.

Operational Allowance - tax-free

Operational Allowance is the daily payment to Service personnel deployed to designated operational theatres. The 2025/26 rate is £29.02 per day. Operational Allowance is:

• Tax-free under the dispensation for designated operational theatres.
• NI-free under the same dispensation.
• Paid for actual days deployed in theatre - administered via JPA.
• Backdated if deployment notification is delayed.

The tax-free status applies because the dispensation is granted by HMRC under Section 297 of the Income Tax (Earnings and Pensions) Act 2003 for "deployment in a particular operational theatre." Currently designated theatres include defined operations in the Middle East, Indian Ocean, and certain UN missions. The MOD list of designated theatres is updated as operational requirements change.

On the payslip, Operational Allowance appears as a separate line - it is NOT added to gross pay for tax calculation purposes. The Service person sees it in the gross-to-net summary as a tax-free element.

Longer Separation Allowance (LSA)

LSA is paid to Service personnel for extended separation from family. It operates in tiered Levels:

Level	Cumulative days separated	Daily rate 2025/26
Level 1	0 to 30	£6.85
Level 5	60 to 90	£14.69
Level 9	180 to 270	£25.45
Level 14	1095+	£41.35

Days qualifying for LSA include:

• Operational deployment.
• Detachment lasting more than 10 nights.
• Separated postings (single Service location with family at home).
• Sea Duty for Royal Navy personnel.

LSA is taxable under standard rules - there is no dispensation. It is also pensionable under AFPS rules, so it counts toward retirement benefits.

GYH (Get You Home) Travel concession

The GYH Travel scheme reimburses Service personnel for the cost of travelling between duty station and qualifying home address. For 2025/26:

• Maximum claim per period of leave is HMRC's Approved Mileage Allowance Payment rate (currently 45p per mile for first 10,000 miles, 25p thereafter).
• Distance limits apply - typically defined journeys for posted personnel.
• Reimbursement is tax-free as it represents reimbursement of actual travel expenses.

GYH Travel is administered through JPA travel claims. Service personnel must keep records (mileage, fuel receipts) to support claims.

Endorsed Family Education (EFE) concession

The EFE concession allows Service personnel posted abroad or in a Continuity of Education location to claim relief for boarding school fees for children. Requirements:

• The Service person must be in a qualifying posting (overseas, MOD-defined remote location).
• The school must be Continuity of Education List approved by MOD.
• The child must be aged 8 to 18 in school education.

Tax treatment for EFE:

• The MOD pays an EFE allowance directly to the parent or to the school.
• The allowance amount is generally tax-free under the dispensation in ITEPA Section 305.
• This concession is unique to Service personnel; it is not available to civilian employees.

The CEA Plus scheme, a 2018 enhancement, increased the maximum EFE allowance to align with mainstream UK boarding school fees. For 2025/26 the rates are typically £10,000 to £30,000 per child per year, depending on age and school approval.

Forces Special Expenses (FSE) deduction

FSE is a deduction allowed against gross taxable pay for Service personnel:

• Annual amount £100 (set by HMRC, not adjusted for inflation).
• Automatically applied to all Service personnel via PAYE coding.
• Reflects unreimbursed expenses (uniform laundry, kit cleaning, regimental subscriptions).

FSE appears in the tax code calculation as a deduction from taxable income. For a Service person on the standard 1257L code, FSE adds £100 to the personal allowance - making the effective code 1267L.

FSE is the smallest of the Service tax reliefs by absolute value but is automatically applied without paperwork.

Local Overseas Allowance (LOA)

LOA is paid to Service personnel posted overseas to compensate for cost-of-living differences. Tax treatment:

• LOA is generally tax-free under the dispensation for overseas postings.
• The non-taxable portion of LOA includes accommodation cost differential, food cost differential, and currency exchange protection.
• Some LOA components for additional discretionary spending may be taxable.

The MOD allocates LOA based on posting location, family circumstances, and rank. The Joint Service Publication (JSP) on LOA is the authoritative source for individual entitlement.

Tax code adjustments for Service personnel

Service personnel typically hold standard tax codes:

• 1257L for most regular service.
• 1267L if FSE is applied (which it usually is).
• Welsh C prefix for Welsh resident personnel.
• Scottish S prefix for Scottish resident personnel.

For overseas-posted personnel:

• Non-resident NT code may apply if the person is overseas for more than the UK Statutory Residence Test threshold (185 days plus various other factors).
• This requires specific HMRC processing and is typically administered via the JPA / Defence Business Services interface.

How the reliefs interact

A single deployment can trigger several reliefs simultaneously:

• Operational Allowance during deployment days.
• LSA (taxable) during all separation days, including deployment.
• GYH Travel reimbursement during leave between deployments.
• EFE concession for children's boarding fees if family relocated.

For a Service person deployed for 6 months (180 days):

• Operational Allowance: 180 × £29.02 = £5,224 (tax-free).
• LSA at Level 9: 180 × £25.45 = £4,581 (taxable).
• Net taxable income from deployment: £4,581 above standard pay.
• Tax saving from Operational Allowance: roughly £1,000 to £2,000 depending on marginal rate.

These reliefs combined can be worth £6,000 to £10,000 in tax-free element to a deployed Service person across a typical operational tour.

Self Assessment for Service personnel with side income

Service personnel with non-PAYE income (e.g. property rental, freelance work, side businesses) must file a Self Assessment tax return. For 2025/26:

• Filing deadline: 31 January 2027 (paper 31 October 2026).
• HMRC marries up Service pay (P60) with self-employment / property income.
• Operational Allowance and other tax-free elements do NOT need to be reported on SA - they are non-taxable.

Service personnel benefit from JPA-issued P60 documents at year end which can be used directly for SA purposes.

Tax-free elements during transition out

For Service personnel approaching discharge:

• Resettlement Grant - tax-free for personnel completing 22 years of service.
• Resettlement Travel - tax-free reimbursement of relocation costs.
• GRT (Graduated Resettlement Time) - tax-free release time for transition activities.
• Career Transition Partnership - fully funded transition support, tax-neutral.

Resettlement support is concentrated in the final 12 to 24 months of service and is typically tax-free as it represents transitional support rather than employment income.

Common errors and how to fix

Common errors on Service person tax codes / payslips:

1. Incorrect Operational Allowance tax treatment - payroll mistakenly taxes the allowance. Submit a P800 reconciliation request via gov.uk.
2. Missing FSE in tax code - submit a written request to HMRC with Service Number.
3. Incorrect Welsh / Scottish prefix - confirm residence on JPA and update HMRC via Personal Tax Account.
4. Tax code change after promotion - standard 1257L should remain unless other circumstances; promotion alone does not change the tax code.

Action checklist

For Service personnel managing their tax position:

1. Track Operational Allowance days carefully - these should be tax-free.
2. Check FSE is reflected in your tax code (look for 1267L).
3. Maintain records of GYH Travel claims for HMRC verification if asked.
4. Apply for EFE if eligible - fees are tax-free but the application must be approved.
5. Set up Personal Tax Account to monitor tax code changes.
6. File Self Assessment if any non-PAYE income.
7. Engage HMRC promptly if any tax-free element is incorrectly taxed.

Disclaimer

PayslipIQ provides automated educational guidance based on the figures you supply. It is not regulated tax or financial advice. Service personnel tax reliefs are administered by HMRC and MOD jointly; individual eligibility depends on rank, posting, family circumstances and deployment record - for substantial tax queries, consult Forces Pension Society, your Unit HR or a regulated CTA-qualified tax adviser experienced with Armed Forces personnel.