Advice? And what to do with a lump sum?

HarpoonJoe

I've been offered a decent voluntary redundancy package and I'm weighing up the pros and cons. I'm looking at having a meeting with my employer over the next few days so I thought I'd try and arm myself with some facts before hand. [I'm married with a working wife and no kids if that makes any difference]

I've calculated that I would expect to get £65k before tax and I think I'm right in understanding that the first 30k is tax free then the rest is taxed as normal, am I right? Currently I earn approx £24k. Am I right in thinking that if I receive my payout before the end of this financial tax year (5th April?) then I'll pay more tax than if I get paid after the start of the next financial year (6th April '15?)? Can anyone confirm?

Anyway, onto my other concern.... what options do I have for my lump sum? Should I pay off the remainder of my mortgage? I've got a balance of around £41k but I'm only paying 0.67% interest (I got lucky with a Woolwich tracker some years ago). Would I be better putting the money into a savings account assuming that I can get 0.67% or more after tax?

What other options do I have? I'm a little perturbed at the prospect of missing out on my pension, is this something I could pay into? I'm only 44 though so it will need to be quite a big sum with a long time before I see any return.


The choices I'm weighing up are:
1. accept their offer and become self employed (I've already got a sideline of teaching martial arts).
2. reject their offer and keep working there full time.
3. negotiate a reduction in my hours to part time while I build up my martial arts classes, maybe with the view of making that my full time job in the future.
3b. Is there such a thing as "half redundancy"? ie going 1/2 time and taking just half a redundancy payment? *too good to be true I guess*

Clearly I've got a lot of thinking to do, but I hope someone can help me get a clearer picture of what my options are.

Thanks

p00hsticks

HarpoonJoe wrote: »

I've calculated that I would expect to get £65k before tax and I think I'm right in understanding that the first 30k is tax free then the rest is taxed as normal, am I right?

yes, I believe so.

HarpoonJoe wrote: »

Currently I earn approx £24k. Am I right in thinking that if I receive my payout before the end of this financial tax year (5th April?) then I'll pay more tax than if I get paid after the start of the next financial year (6th April '15?)? Can anyone confirm?

Sort of, but in the end it will depend overall on what you end up doing and how much you earn in the next tax year. If you walk straight into another job paying the same sort of salary I donlt think it will really make any difference when you leave.

Broadly speaking, you have a £10k tax free allowance each year, and can earn another £31k (approx) at basic rate of tax before having to pay a higher rate.

So this year you've already used up a fair chunk of your tax free and basic rate allowance on your £24k salary, and so the £35k part of your redundancy over £30k will be taxed partly at basic rate and partly at a higher rate.

On the other hand, if you were made redundant on 6th April, you've got a new £10k tax free allowance and £31k basic rate allowance which will more than cover the £35k redundancy amount - so you;ll have less tax deducted from the redundancy payment. HOWEVER, if you then go on to a new job at any point during that new tax year, you've then used most of your allwance up already and some of new salary would be at the higher rate - so it evens out.

[disclaimer - I'm not a redundancy tax expert so the actual tax deductions on the redundancy pay and any subsequent salary may or may not be as simple as I've made out, but I believe the basic principal I've described is correct]

lovehackney

Originally Posted by HarpoonJoe View Post
I've calculated that I would expect to get £65k before tax and I think I'm right in understanding that the first 30k is tax free then the rest is taxed as normal, am I right?

Not necessarily
If any of the payment is in lieu of notice, it is taxable as normal (and subject to national insurance etc).

e.g., say your £65k lump sum is made up of:

£5k pay in lieu of notice all of this is taxable
£60k other (e.g., statutory redundancy and a lump sum payment), then £30k of this bit will be taxable

asajj

With regards to offer, will you be able to get that much money in any point in your life as lump sum?

If yes and are worried about finding a new job, then keep working there.

If it was me, I'd take the money and find another job.

I was working in a company that was making long-term employees redundant after a project and many took up the money to have a bit time off and found other jobs.

There are number of investment advices (i.e. santander interest account etc) - have a read or/and speak to an advisor perhaps as they will show you the most tax efficient way (hopefully)

getmore4less

If you can build up the business it should be much quicker if not working as you can focus on promotion activities.

You can always add other self employed work(even with the old employer) to fill the gaps one you get a better feel for how quick you can build up the business.

ThriftyShelly

My hubbie was in this position last year, but the pay out he got was considerably less than yours, after taking a lot of advice
we decided to put the maximum amount we could in ISA's, booked a cruise (well he worked so hard for many years!!) and then put the rest in premium bonds. (upto now we have had a about 5 £25 payouts!) Our mortgage doesn't have much on it and we have a low rate like you so decided to let this run and put the money in the ISA and premium bonds instead.
He got a permanent job again after a few months of uncertainty and is much happier in the new job than the old so I guess we have been very lucky
Best of luck for your future

HarpoonJoe

Thank you all for your kind responses. I've decided to take the money and run.

I was just wondering if I would be paying the usual National Insurance contributions on the taxable part of the lump sum? I'm thinking this might be a question for another thread anyway.

Thanks again