Redundancy and ways to reduce Tax impact

SoonToBeRedundant

I am getting redundant end of Jan. My total settlement figure (including the £30K tax free) will be around £70K. This will push me into the 40% tax bracket and I am looking at any possible means to minimise the hit.


I am too young to be allowed to additionally contribute to my company pension plan but is it possible to somehow open a private pension account with a one-off pension contribution of lets say 20K? Is this even possible and if so have I left it late to start the process?


Thanks

Sobryma

Sorry to hear that been there and its not good no matter how much the payoff is.

Its not too late and yes you can contribute to a pension in this tax year it would take that long to set up a SIPP or personal pension online, I would leave for a while.

Don't want to be negative but do you have another job? If not I would keep as much free cash as possible.

This is due to 1. it will be difficult to know when you will get another job and 2. when you do the market may well kill you with a pay/benefits cut and 3. if you don't get a job pre 5 April you may be due some tax back for unused allowances.

Even if you have another job it might be worth waiting to check it works out, bird in the hand - if you put money in a pension its locked away .

atush

30K is tax free the rest is taxalbe. How much this year did you put into pensions? Your yearly allowance is 40K or your income whichever is lower.

And if you were in a pension for the last 3 years, you can mop up some of this into a pension (if not your work pension although many work pensions consider redundancy payments to be pensionable so do check this.7

So consider your job prospects and proceed and put any of the taxable 40K into pension you dont need to live on.

jamesd

Yes, you can pay into a personal pension. That money will be locked up in the pension until you are at least 55, 57 if you reach 55 after about 2028.

You could instead consider making Venture Capital Trust buys. This provides you 30% income tax relief up to the total amount of income tax you'd pay in the tax year. You have to repay the income tax if you sell within five years but should expect to hold for at least eight or so. They tend to pay about 5% tax free dividend income a year. The advantage for you is that if you truly need some of the money you can get it out faster than with the pension, even before five years if you're willing to take the tax hit.

Once you've made the investment you tell HMRC and they arrange to refund you the due amount, either by cheque ot to a bank account that you nominate.

Unlike the pension, the VCT money is probably counted as savings for benefit means tests, so if you think you may be unemployed for a long time the pension would be the better way to go.