what things to consider re tax

normanna · 27 July 2017 at 9:08AM

Hi

I took redundancy this month and my gross redundancy was 105k. I opted to take the first 30k tax free and this was paid in my July salary. Using pension carry forward for previous 3 years I asked for the remaining 75k to be put into my AVCs and have calculated that there is no tax to pay (I think). My salary was in the higher tax bracket and I have paid tax at 40% this year but my actual total salary for this year would put me in the lower tax bracket and I do not intend to earn any income for a year or 2.

What am I able to do with regards to claiming any tax back from HMRC please and is there anything else I should consider?

Thanks

getmore4less · 27 July 2017 at 12:57PM

P50 if you don't plan to claim JSA

Kynthia · 28 July 2017 at 12:15PM

Are you sure you have enough annual allowance carry forward to put £75k into your pension if your earnings this year aren't high enough to pay higher rate tax?

normanna · 28 July 2017 at 4:57PM

Are you sure you have enough annual allowance carry forward to put £75k into your pension if your earnings this year aren't high enough to pay higher rate tax?

think so, I didn't utilise my full allowance for the previous 3 years and I was a higher rate tax payer anyway. Thanks for asking but I think I'm ok here with this element

normanna · 28 July 2017 at 5:00PM

Thanks i've gone onto hmrc and filled in P50 looks like I may get around £3k tax refund.

Kynthia · 29 July 2017 at 4:07PM

normanna wrote: »

Are you sure you have enough annual allowance carry forward to put £75k into your pension if your earnings this year aren't high enough to pay higher rate tax?

think so, I didn't utilise my full allowance for the previous 3 years and I was a higher rate tax payer anyway. Thanks for asking but I think I'm ok here with this element

Just be careful as i thought i could do this also as I'm being made redundant. However I have now been told that you can only use previous years carry forward to increase the current year's maximum contributions from the £40k annual allowance up to your annual earnings (which therefore must be higher). If this year you aren't going to have earned income exceeding £40k then you can't use any carry forward and can only get tax relief on the lower of £40k and your earned income.

For example if your earned income this year is £75k then you can usually only get tax relief on £40k gross pension contributions. However you can use previous years carry forward, if you have enough, to get tax relief up to the £75k gross contributions and no more.

If your earned income this year is £30k then the fact you earned £75k for the last 3 years and have unused allowance doesn't matter. This year you will be capped at your earnings limit which is £30k gross.

The Pensions board on this forum can probably explain it better than me but I'm pretty sure that's how it works.

TrickyDicky101 · 2 August 2017 at 5:14PM

Kynthia wrote: »

Just be careful as i thought i could do this also as I'm being made redundant. However I have now been told that you can only use previous years carry forward to increase the current year's maximum contributions from the £40k annual allowance up to your annual earnings (which therefore must be higher). If this year you aren't going to have earned income exceeding £40k then you can't use any carry forward and can only get tax relief on the lower of £40k and your earned income.

For example if your earned income this year is £75k then you can usually only get tax relief on £40k gross pension contributions. However you can use previous years carry forward, if you have enough, to get tax relief up to the £75k gross contributions and no more.

If your earned income this year is £30k then the fact you earned £75k for the last 3 years and have unused allowance doesn't matter. This year you will be capped at your earnings limit which is £30k gross.

The Pensions board on this forum can probably explain it better than me but I'm pretty sure that's how it works.

OP's gross settlement is £105k - assuming (as quoted) first £30k is tax free then - at a minimum - OP's taxable income for the current year is £105k - £30k = £75k.

Kynthia · 5 August 2017 at 9:13AM

TrickyDicky101 wrote: »

OP's gross settlement is £105k - assuming (as quoted) first £30k is tax free then - at a minimum - OP's taxable income for the current year is £105k - £30k = £75k.

Are you saying that the redundancy payment, less the £30k, is considered "earned" income as not all taxable income is? I know pension income and money from property rentals isn't considered earned income and therefore isn't included in the limit for annual pension contributions.

ffacoffipawb · 5 August 2017 at 9:59AM

Kynthia wrote: »

Are you saying that the redundancy payment, less the £30k, is considered "earned" income as not all taxable income is?

Yes it is earned income and can be pensioned if desired, assuming enough carry forward is available.

Kynthia · 5 August 2017 at 9:12PM

ffacoffipawb wrote: »

Yes it is earned income and can be pensioned if desired, assuming enough carry forward is available.

That's fantastic news, thank you. A financial advisor giving our redundancy briefing stated I could not use any carry forward as my income this year wasn't high enough, yet didn't mention the redundancy payment which will increase my earnings for the year significantly. He really should have mentioned this.

what things to consider re tax

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