Advice - Redundancy

[AMV]

Dear MBClub UK friends,

I thought i'd ask just for some confirmatory advice, i will be seeking further guidance from a professional however i thought someone might of been made redundant recently.

I would like to know if anyone can conclusively let me know if a redundancy payout is taxable or not, from what i have read online above £30,000 i will have to pay tax dependant on my bracket.

Also from what i've read its better to be made redundant as early as possible in the tax year?

My partners payout exceeds £30k, therefore i am looking at ways to manage the hit.

Thanks,

 

[Spin_bowler]

Yeah, first 30k is tax free. The rest is taxed at your rate based on income over that tax year. It doesn't really matter when in the year you're made redundant as the tax will equalise over time (make sure HMRC know employment status and current tax code). However there would be some advantage in taking all 30k in, say, May, if there were to be a longer break in income (i.e not going straight into a new job) as your overall earnings in the year may be lower and keep tax owing for the whole year lower.

If you're unsure though, guidance from a professional better than "bloke on the internet who's been made redundant before"

 

[st13phil]

The taxable status of severance payments will vary according to its components, but the first £30k of redundancy compensation is not taxable. Money in lieu of notice (and accrued holiday pay, etc.) will always be taxable. In terms of timing, I don't know of any reason why it makes any ultimate difference when it happens during a tax year, but depending upon personal circumstances it can affect an immediate tax liability.

For many people it's worthwhile considering commuting what would otherwise be the taxable element of any severance package into their pension, meaning that (within limits) it won't attract tax or NI liabilities.

As @Spin_bowler says - especially if things are not simple and straightforward - guidance from a professional would be beneficial and will help you avoid potential bear traps.

 

[GeeJayW]

You may be able to put a portion of the payout into an AVC or pension...

Making the most of your redundancy pay | MoneyHelper

www.pensionsadvisoryservice.org.uk

 

[AMV]

You guys have been spot on! Yes thats also something we are considering was putting a portion into a pension pot.

Thanks for the advice so far fellow "Blokes off the internet"

 

[BTB 500]

You guys have been spot on! Yes thats also something we are considering was putting a portion into a pension pot.

Thanks for the advice so far fellow "Blokes off the internet"

It will probably depend on when the redundancy payment is received, and whether it's a company or private pension. In my case (last October) I got a separate payment some weeks after my final monthly salary - by that point I had left employment so could no longer pay into the company pension scheme. This was made clear well in advance though.

 

[st13phil]

I got a separate payment some weeks after my final monthly salary - by that point I had left employment so could no longer pay into the company pension scheme.

That's unfortunate. Is that because you had started drawing from the pension scheme, or was it part of the scheme rules that prevented that?

When I retired (early!) a couple of years ago, I knew I was due an annual bonus payment that wouldn't be made until two or three months after I'd finished so I discussed commuting the payment to my pension scheme with my employer to avoid tax and NI liabilities. At first I was told it couldn't be done, so I researched and found a guide describing how to achieve it which I gave them. I think the fact that it also eliminates the Employer's NI liability on the sum commuted swayed it ( ) and ultimately that's what they did.

 

[flowrider]

I was screwed by my employer when I was made redundant 3 years ago. I was told my payment would be made in April which would have meant paying no income tax as I wasn't planning on working that tax year, they did pay me in April but backdated it to March which resulted in me paying £6k in income tax! I was not pleased and when I complained I was basically told that there was nothing they could do.

 

[C240Sport97]

Only put into pension that part which is above the £30k tax free allowance

 

[C240Sport97]

I was screwed by my employer when I was made redundant 3 years ago. I was told my payment would be made in April which would have meant paying no income tax as I wasn't planning on working that tax year, they did pay me in April but backdated it to March which resulted in me paying £6k in income tax! I was not pleased and when I complained I was basically told that there was nothing they could do.

If their liability to make the redundancy payment arose before the new tax year (ie. your employment terminated before 6 April), that payment (even if made in next tax year) would count in the old tax year.

Conversely, if your employment terminated after 6 April, the payment would be subject to new tax year. If this is the case, you could contact HMRC and see if you can get a refund.

 

[Petrol Pete]

A bunch of us took healthy redundancy packages (over 15 years ago) and anything over £30K was taxed at your pay rate . Everyone dumped the 'overflow' into pensions and/or tax friendly products. Sounds like the same is true of today.

There are a lot of people looking at this these days , take Honda UK for example , there are a lot of well paid people working there , Honda have offered a decent redundancy package and some would be mad to take it all out while the tax man is waiting.....

Strangely enough the £30K of my package just went straight into my current account with my last payslip ! not knowing how these things worked back then I had expected a cheque or a phone call from the company. What I did get was a phone call from my bank manager asking me WTF !?

By the way that was the first time my bank had ever called me in 20 years

 

[C240Sport97]

Remember too not to exceed your pension life time allowance

 

[ChrisEdu]

A bunch of us took healthy redundancy packages (over 15 years ago) and anything over £30K was taxed at your pay rate . Everyone dumped the 'overflow' into pensions and/or tax friendly

Strangely enough the £30K of my package just went straight into my current account with my last payslip ! not knowing how these things worked back then I had expected a cheque or a phone call from the company. What I did get was a phone call from my bank manager asking me WTF !?

By the way that was the first time my bank had ever called me in 20 years

To which the response, 'Ah, good, the Nigerian Prince came good on his promises,' would have been a good one.

 

[Petrol Pete]

To which the response, 'Ah, good, the Nigerian Prince came good on his promises,' would have been a good one.

I actually told him not to bother trying to sell me any 'investment packages' as I intended to spend it all ....and I did , it was gone within a year

 

[Athey]

Sorry to hear about your redundancy. I was made redundant last year, and my boss tried saying I wasn’t entitled to much, but after a quick search, I explained the case and he checked on it and found I was right. I got the right amount luckily.

 

[st13phil]

Remember too not to exceed your pension life time allowance

Or the annual allowance for that matter, but remember that you can carry forward any unused allowance from the prior three years.

 

[Petrol Pete]

OP , I think from reading our advice , depending on the figures involved , get proper financial advice. We all have different experiences and expectations but we are agreed on one thing , keep as much of it from the taxman as is legally possible

 

[Tuercas viejas]

OP , I think from reading our advice , depending on the figures involved , get proper financial advice. We all have different experiences and expectations but we are agreed on one thing , keep as much of it from the taxman as is legally possible

Absolutely!
I skedaddled and kept it all.
Opened a thriving business in South America with the proceeds.
Mucha Gracia Snr recaudador de impuestos británico
Tuercas Viejas

 

[ChrisEdu]

I actually told him not to bother trying to sell me any 'investment packages' as I intended to spend it all ....and I did , it was gone within a year

Hookers and drugs?!

 

[ChrisEdu]

Absolutely!
I skedaddled and kept it all.
Opened a thriving business in South America with the proceeds.
Mucha Gracia Snr recaudador de impuestos británico
Tuercas Viejas

A thriving pharmaceutical type company?