Tax and Redundancy

JBC_2

Please can anyone help me with this.

I am being made redundant and I've been given the option to leave at the end of March or late April.

I currently earn 35k per year

I am due to receive 65k redundancy. I believe the first 30k is tax free but the remaining 35k is taxed at 40%.

If I opt to leave in late April

• Will the taxable 35k be classed as earnings ?

and if so

• If I get another job for 20k will I be paying the 40% higher rate of tax on my new salary ?

• Will I have to pay 40% tax on the interest from my savings ?

Basically I'm asking when is the best tax efficient time to leave, March or April.

Many thanks in advance

CLAPTON

The excess over 30k is taxed as income and the rate of tax is deterimed by your total earning in the relevant tax year (and not at 40% as such).

So in your case as you earn 35k this year if you take redundancy this year then you are taxed as if you earned 35k(earnings ) + 35k (redundancy) ie.as if you had earned 70k plus any savings interest... so you pay 40% on the amount over 40,835

If how you take it next year and you only earn 20k in that year you will pay tax on 20k + 35K plus interest on savings... i.e. you pay 40% on the amount over 43,875 taking into account the increase in personal allowance

So it would seem that you are better off in taking it next year as less will be taxed at 40%

Mary_Hartnell

This afternoon someone asked a very similar question on the Moneybox 'phone in on Radio 4 (You can listen again on the net if you want to)

It is not automatic that the first 30K is tax free. Your interest will be taxable at your marginal rate - you won't be getting much interest at present saving rates.

The government is desperate for cash, so we will see in the belated budget if taxes will go up or the pound will go down on the exchange markets.

If you post the actual figures it will be easier to understand your predicament..

JBC_2

Many thanks for your replies.

You've been really helpful.

Thanks again.

PaulinWeston

A colleague of mine was in a similar position last year. He asked his employers to pay his redundancy pay to him in two chunks: one at the end of march (£30K) and the next at the end of April (20K). And that way his redundancy payment (total £50K) was split over two tax years and he didn't have to pay tax on either bit.

I'm not an expert but you may want to check this is ok etc. - if it is - You could be much better off.

Sorry to hear about your redundancy btw.

Primrose

The other option is to ask your employers to pay all your entitlement over the £30,000 tax free redundancy sum into your occupational pension scheme as an additional voluntary contribution which would exempt it from tax. However, I believe the rules are that the payment has to be made AFTER you have left their employment, otherwise it is counted as salaried income and you will be taxed accordingly. Talk to your pension fund trustees. If you're not paying into a company pension but have a personal pension I think the same arrangement can be made and your pension provider should be able to advise you on how the payment should be made.