Redundancy and taxation

Rack_Failure

Hi
I am 57 and will shortly be made redundant after 30+ years service and I'm taking my pension. I've been fortunate enough to find a new job, albeit at a much lower wage, so basicaly I stop Friday and start Monday.

My question is, since I'll be paying a serious amount of tax on my redundancy (I'm taxed at 40% on my salary) will I get any tax back after I start work? It looks to me I'll be taxed at 40% on my low salary because of the amount I have already earned this tax year....doesn't seem fair to me.

Any advice will be greatly appreciated.

Jarndyce

The first £30,000 of a redundancy payment is tax-free. You can also take a tax-free lump sum from your pension, but there are qualifications to the latter which you need to research and see how they apply to your circumstances - perhapos a session with an individual financial advisor might be to your advantage. Your union should have details otherwise a high street IFA will usually give a free intro session if they think you might be investing some of your cash and they might get commission (no obligation to do so of course).

Otherwise, the redunadancy pay over £30000 is taxed as income, as is your current and future salary, which is as fair as this tax system gets!

getmore4less

It's total for the tax year.

Only 6 months so far so 1/2 a salary + redundancy over £30k + 6 month at low pay + penson does that total go over £42750?

You won't get tax back untill year end if due but will get lower tax on the income if you have paid more in the mean time often some redundancy gets taxed at 50% now but it is the total for the year that matters.

Might be sensible to look at pension for the excess

Since you planned to work it might have been worth looking at delaying pension that since it will also be taxed at 40% if you go over the £42750 with 6month pay so far and redundacy, allthough no NI on the pension there will on the work you do if you go over the threshold.

Once you reach state retirement then NI stops.

patman99

I think Tax on pensions is often over-looked by people taking early retirement then returning to work. I thought pensions could only be deferred for a minimum of 12 months. Mind you, if the OP is getting a big redundancy pay-out, then he should survive long enough on low income to defer for a year. After all, if his pension is £100 p/w, then he would save 26 weeks x £40 tax. So in theory would be paying £1040 less Tax.

One piece of advice I would give the OP. If you haven't maxed your ISA allocation for the year, then use your forthcoming payment to do that. At least by investing the maximum amount in your ISA's each year you can grab back some of that tax you have paid-out.

Also, quickly apply for citizenship of Gibralta, you can then avoid paying any tax on your income.