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  • FIRST POST
    • Liffy99
    • By Liffy99 14th Mar 17, 1:47 PM
    • 15Posts
    • 1Thanks
    Liffy99
    Making the most of redundancy sum
    • #1
    • 14th Mar 17, 1:47 PM
    Making the most of redundancy sum 14th Mar 17 at 1:47 PM
    Hi
    I'm about to be made redundant from the NHS with a gross lump sum payment of about £110k.
    I know the first £30k will be tax free but how do I minimise tax on the remainder ? The payment is to be made early in the 2017/18 tax year (probably May).
    At the moment I am a 40% tax payer but, once redundant, my only possible income source (unless I seek another job) will be my modest NHS pension of approx £15k / annum.
    Does this mean the taxable element of the redundancy lump sum (110-30 = 80) would be taxed at 20%, 40% or a combination of several factors.
    For example;
    Income for 2017/18 year may equal
    £5k salary for April
    £13k NHS pension for rest of tax year
    £80k redundancy balance
    TOTAL £98k

    Tax free personal allowance of £11500
    20% tax on next £33.5k = £6.7k
    40% tax on remainder (98-11.5 - 33.5 = 53k) = £21.2k

    Or do I have this all wrong ?

    I understand I may be able to contribute to my non NHS pension scheme - I realise I am limited to a £40k gross contribution but does all of this in-year income (pension + redundancy + salary) count as income for that purpose ?

    Answers on a postcard welcome . . . .
    Thanks
    Last edited by Liffy99; 14-03-2017 at 3:57 PM.
Page 1
    • getmore4less
    • By getmore4less 14th Mar 17, 2:17 PM
    • 29,445 Posts
    • 17,597 Thanks
    getmore4less
    • #2
    • 14th Mar 17, 2:17 PM
    • #2
    • 14th Mar 17, 2:17 PM
    20% tax on next £45k

    next £33,500
    • getmore4less
    • By getmore4less 14th Mar 17, 2:19 PM
    • 29,445 Posts
    • 17,597 Thanks
    getmore4less
    • #3
    • 14th Mar 17, 2:19 PM
    • #3
    • 14th Mar 17, 2:19 PM
    Could you not defer your pension?
    • Liffy99
    • By Liffy99 14th Mar 17, 3:54 PM
    • 15 Posts
    • 1 Thanks
    Liffy99
    • #4
    • 14th Mar 17, 3:54 PM
    • #4
    • 14th Mar 17, 3:54 PM
    As far as I know, I can certainly defer taking my pension as as long as I want. However it's annual value would not change, so I would simply lose the annual amount for each year deferred. So I may as well take it, even if I effectively pay 40% tax in year one on it.

    Given that tax deducted from my normal salary is at a mix or rates up to 40% (i.e. the tax is taken on the expectation I work a full year) would I have to reclaim from HMRC if total earnings for the year did not reach the £45k threshold ? then again the 'income' from the redundancy would presumably remove this option anyway.

    The only other thing I can think of is to put some of the redundancy payment into my non NHS pension and get back 20% (or maybe even 40% ?).

    Golly, whoever dreamt up all these rules . . . .
    • Dazed and confused
    • By Dazed and confused 14th Mar 17, 6:08 PM
    • 1,594 Posts
    • 681 Thanks
    Dazed and confused
    • #5
    • 14th Mar 17, 6:08 PM
    • #5
    • 14th Mar 17, 6:08 PM
    From your original post you are clearly going to be paying a lot of 40% tax in the 2017:18 tax year so pension contributions would be tax efficient as you could receive quite a bit of higher rate tax relief.

    You are probably best starting a thread on the MSE pensions board for help with best options but in simple terms you can end up with a pension pot way in excess of what you put in.

    Say for example you invest £8000 and the pension company claim basic rate tax relief from HMRC so you have £10000 in your pension. You can then claim higher rate tax relief from HMRC and you get a £2000 tax refund (or £2000 reduction in any tax you have to pay) so the £10000 in your pension fund has actually only cost you £6000.
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