Redundancy Payment and tax...excess to AVC's??

tamste

Originally posted on "The Great "What to do in the event of redundancy" hunt" and reposted here on advice received in that thread, so please be gentle about the double posting....

I am currently at risk of redundancy (46 years old), and as a single postholder in a position that is not required in the new structure, expect to receive my formal notice within the next few weeks. I am doing the usual, i.e. sorting the finances (no debt exept mortgage), looking for new opportunities etc. but am currently focused on the short term.

After 23 years service, I will get a good compensation package such that there may be a significant sum be over the £30k tax free allowance (actual sum dependant on current NHS redundancy review), and will because of my salary level be taxed at 40%. Can I place some of this money that would otherwise be taxed at 40% into an AVC without falling foul of the deprication of assets rule........i.e. place the money into a pension before the tax man takes his 40%, and get him to pay 40% into my plan. I do not have an AVC at present, but my employer (the NHS) do have a couple of linked providers........not sure if its best o go with them or set up my own, though this may depend on whether they can pay the agreed AVC contribution directly before tax.

Any advice at this trying time is greatly appreciated.

jonathon_hart

The main point I would make is don't forget to leave yourself enough to live on if it takes you, for example 6 months to find a new job.

If you wish to do a salary sacrifice/ AVC direct from the redundancy package into the NHS scheme it is worth bringing this up when the redundancy package is discussed.

Otherwise you can put the money into a personal pension. They will claim back the basic tax and then you can claim back the remaining tax.

Thanks

Jonathon

tamste

Thanks Jonathon, good advice

I do have plans to enure there is enough money available for several months, and of course there the £30K tax free portion, but I would rather put what I can in excess of the £30K into pension provision so that it benefits me most in the long run. If I do nothing with it, I pay 40% tax on it, If I place it in pension provision the lovely taxman gives me 40% rather than taking it, but I am concerned he may see this as deprication of assets which could affect me in the future if no job is forthcoming.

jonathon_hart

Hi.

You cannot get the tax back twice!! - the HMRC aren't that generous

If you paid it into the NHS scheme it would probably go in before you paying any tax and you would not be able to claim the tax back (as you haven't paid any)

If it goes to a personal pension then you have to pay the tax and claim it back.

Thanks

Jonathon