Redundancy payment and tax treatment

madeinireland_2

If I take redundancy I am due about £50k.

I know that I can receive £30k tax free and I can choose in my case to take the income over more than 1 year but my question is this....

If I take £40k one year - the £30k and my annual allowance - how is any further income treated for tax purposes ?

Is it 20% due to having used up the annual allowance or is it 40% as I am on the brink of the higher allowance ?

Thanks

green_man

The £30K is discounted against any tax liability. Anything else is treated like any other earned income in the year it is received.

So If the only income you receive in a particular year is the 40K then you will receive that tax fee, but any other income in that year would be taxed at 20% or more depending on the amount.

If you are being made redundant surely you will have been receiving salary in the current year? If taken yext year that I don't see how they can defer payment for more than a year.

Note - Paying figures above the £30K into a pension is a good way to avoid paying tax on it.

madeinireland_2

Thanks - I'm not being made redundant yet but it is common practice in our company that you can spread your payment over 3 tax years so just trying to understand the impacts elsewhere and trying to minimise tax payments. Yes I am aware I can reduce tax by making a pension payment or by investing in VCT's - but it's not much use being able to make a pension payment if you end up exceeding the LTA with your payment.

kidmugsy

green_man wrote: »

The £30K is discounted against any tax liability.

What do you mean?

green_man

kidmugsy wrote: »

What do you mean?

I didn't word that very well. I just meant the £30K is not subject to tax so you can ignore it for tax purposes.

atush

Another option is to pay the money that will be taxed into a pension.

madeinireland_2

Not if it makes a LTA issue worse