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    • williegofar
    • By williegofar 16th Jun 17, 3:39 PM
    • 189Posts
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    williegofar
    Redundancy - Extra pension payments
    • #1
    • 16th Jun 17, 3:39 PM
    Redundancy - Extra pension payments 16th Jun 17 at 3:39 PM
    Hi,
    I'm hoping that someone might be able to advise on this; I am about to get made redundant. The amount involved is almost 100k. My company is allowing people to make extra contribution to their salary as part of this.

    I am confused about how much I will be able to pay in and still be receiving tax relief. From what I've read, there's a limit of 40k a year. However, you might be able to 'carry forward' unused allowances for the last 3 years.

    But this is where the confusion really starts, I've read on a website the stipulation that you can only pay in an amount equivalent to what you have earned in the current tax year.

    In my case my salary is around 35k. I am getting made redundant at the end of August. So 5 months into the financial year, I will have earned roughly 14.5k. My question is; is 14.5k really all that I will be able to pay in and get tax relief?

    Thanks a lot.
Page 1
    • simonfitba
    • By simonfitba 16th Jun 17, 3:53 PM
    • 160 Posts
    • 64 Thanks
    simonfitba
    • #2
    • 16th Jun 17, 3:53 PM
    • #2
    • 16th Jun 17, 3:53 PM
    You'll be able to pay in 35x3 (less the amount you put into your pension over the last three years).
    • Linton
    • By Linton 16th Jun 17, 3:55 PM
    • 7,894 Posts
    • 7,701 Thanks
    Linton
    • #3
    • 16th Jun 17, 3:55 PM
    • #3
    • 16th Jun 17, 3:55 PM
    For "salary" in the second line I guess you mean "pension"!

    You are limited to £40K per year including employers contribution and yes you can carry forward unused allowance for 3 years.

    As a completely separate restrictiuon you are limited to your eaned income in a tax year and there is no carry forward, but this limit does not include employer's contribution. PILON does count as earned income for this purpose. Also you could ask your employer if they would pay some of the money directly into your pension as an employers contribution which is only constrained by the £40K +carry forward limitation. Redundancy payments above the £30K tax free limit also count as earnings.

    The net effect is that depending on your pension contributions in previous years you could get most of the £100K into your pension.
    • williegofar
    • By williegofar 16th Jun 17, 4:01 PM
    • 189 Posts
    • 108 Thanks
    williegofar
    • #4
    • 16th Jun 17, 4:01 PM
    • #4
    • 16th Jun 17, 4:01 PM
    Thanks both.

    Redundancy payments above the £30K tax free limit also count as earnings.
    Originally posted by Linton
    I hadn't considered that!!
    Fantastic
    • williegofar
    • By williegofar 16th Jun 17, 4:04 PM
    • 189 Posts
    • 108 Thanks
    williegofar
    • #5
    • 16th Jun 17, 4:04 PM
    • #5
    • 16th Jun 17, 4:04 PM
    There's tonnes of unused contributions from the last 3 years. Certainly over 80k.
    Thanks again for that. Really really cheered me up.
    • simonfitba
    • By simonfitba 16th Jun 17, 4:20 PM
    • 160 Posts
    • 64 Thanks
    simonfitba
    • #6
    • 16th Jun 17, 4:20 PM
    • #6
    • 16th Jun 17, 4:20 PM
    Don't forget if you pay straight into a pension from redundancy, without it hitting your bank account, you won't see 40% or 20% added as you've not been taxed on the money in the first place.
    • williegofar
    • By williegofar 16th Jun 17, 4:27 PM
    • 189 Posts
    • 108 Thanks
    williegofar
    • #7
    • 16th Jun 17, 4:27 PM
    • #7
    • 16th Jun 17, 4:27 PM
    Don't forget if you pay straight into a pension from redundancy, without it hitting your bank account, you won't see 40% or 20% added as you've not been taxed on the money in the first place.
    Originally posted by simonfitba
    Sorry, I don't follow what you mean. My goal is obvious to avoid paying a big chunk of this redundancy in tax. Paying it into my pension does that. I appreciate that at some point in the future when drawing money from the pension I will be paying some tax on 75% of it at least. but it avoids me having to pay 40% tax on it now.

    Could you elaborate?
    Thanks.
    • simonfitba
    • By simonfitba 16th Jun 17, 4:33 PM
    • 160 Posts
    • 64 Thanks
    simonfitba
    • #8
    • 16th Jun 17, 4:33 PM
    • #8
    • 16th Jun 17, 4:33 PM
    Sure. I just mean if you pay £10,000 straight into the pension from redundancy (without it being taxed first) you won't get any tax uplift to say £12,500. (20%)

    It's the same as getting the money in your bank first (and taxed) THEN paying it into the pension.

    Only thing you save doing it the first way is National Insurance.
    • simonfitba
    • By simonfitba 16th Jun 17, 4:36 PM
    • 160 Posts
    • 64 Thanks
    simonfitba
    • #9
    • 16th Jun 17, 4:36 PM
    • #9
    • 16th Jun 17, 4:36 PM
    Best thing is to keep the £30,000 tax free payment from redundancy in your bank.

    And tell your employers to put the rest of the redundancy payment (as long as that's money that you won't need until pensionable age) straight into the pension.
    • williegofar
    • By williegofar 16th Jun 17, 4:37 PM
    • 189 Posts
    • 108 Thanks
    williegofar
    I think I see what you mean.
    Thanks.
    • williegofar
    • By williegofar 16th Jun 17, 4:40 PM
    • 189 Posts
    • 108 Thanks
    williegofar
    Best thing is to keep the £30,000 tax free payment from redundancy in your bank.

    And tell your employers to put the rest of the redundancy payment (as long as that's money that you won't need until pensionable age) straight into the pension.
    Originally posted by simonfitba
    My intention now is, as you suggest, put everything above the 30k into the pension. I'll be 55 in 18 months time, so I can my hands on the money (in a sensible way) then if I want to anyway.
    • Linton
    • By Linton 16th Jun 17, 4:42 PM
    • 7,894 Posts
    • 7,701 Thanks
    Linton
    Sure. I just mean if you pay £10,000 straight into the pension from redundancy (without it being taxed first) you won't get any tax uplift to say £12,500. (20%)

    It's the same as getting the money in your bank first (and taxed) THEN paying it into the pension.

    Only thing you save doing it the first way is National Insurance.
    Originally posted by simonfitba
    The net result is the same. Either the tax is taken off first, the money put into the pension and HMRC then give back the tax. Or all the money goes tax free into the pension and doesnt get a rebate. You just have to remember that if you pay with taxed money you pay 80% of what you want in your pension.
    • simonfitba
    • By simonfitba 16th Jun 17, 4:45 PM
    • 160 Posts
    • 64 Thanks
    simonfitba
    My intention now is, as you suggest, put everything above the 30k into the pension. I'll be 55 in 18 months time, so I can my hands on the money (in a sensible way) then if I want to anyway.
    Originally posted by williegofar
    That's perfectly sensible and what I would do. Good luck on your imminent 'retirement'!

    Don't forget to fill your ISA with some of the £30k.
    • williegofar
    • By williegofar 16th Jun 17, 4:47 PM
    • 189 Posts
    • 108 Thanks
    williegofar
    That's perfectly sensible and what I would do. Good luck on your imminent 'retirement'!

    Don't forget to fill your ISA with some of the £30k.
    Originally posted by simonfitba
    Cheers. The assistance is really appreciated.
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