Redundancy payment structure help

tillycat123

I just wanted to ask if there is any way I can try and ask for the settlement payment to be structured to help reduce tax paid on it?

Already close to £80k earned this year.

Offer is my 3 months notice to be paid as 1 lump sum December 31st, along with bonus owed. So around £50k. I tried for garden leave to spread it but it was a no go.
Retain use of company car till end March.
3 months gross pay as compensation, just shy of £30k

So looks good but I'm going to pay a large amount of tax. Is there anything I should be asking and can be done differently to minimise the tax?

Many thanks

laticsforlife

Not that I can think of.

xylophone

Have you paid the maximum allowable into your pension?

https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief

[Deleted User]

The first thing would be to establish what is taxable. Is the PILON contractual? If not, it may well be exempt.

The redundancy element appears to be less than £30000, that would be tax free!

If you do not work before 5th April you will have overpaid in this tax year as you would not have used all of your 20% band. Additionally if your overall income is less than £121200 (after pension contributions) you may be entitled to at least some personal allowances.

kidmugsy

Assuming that neither you nor your employer has been contributing to a DB pension for you, you can contribute to a pension a net amount equivalent to gross amounts as follows :

2015-16: £40k less any other pension contributions made by you or on your behalf since July 8th, 2015.

2014-15: £40k less any other pension contributions made by you or on your behalf in that tax year.

2013-14 (& 2012-13) £50k less any other pension contributions made by you or on your behalf in that tax year.

The whole sum of those, though, is capped by your earnings (not your income) for 2015-16. I suggest that the sums involved are big enough that you'd be wise to see an IFA who can alert you to any wrinkles that a short summary is bound to omit. In short: it looks likely that you can avoid all the higher rate tax that you'd otherwise be hammered with.

jimmo

[Deleted User] wrote:

Is the PILON contractual? If not, it may well be exempt.

Are you sure about that?
Back in my day PILON was either taxable in full or taxable as compensation. Looks like it still is to me.
http://www.hmrc.gov.uk/manuals/eimanual/EIM12979.htm
If so, in this case the £30,000 exemption has already been used (more or less) leaving the PILON taxable in full.

[Deleted User]

jimmo wrote: »

Are you sure about that?
Back in my day PILON was either taxable in full or taxable as compensation. Looks like it still is to me.
http://www.hmrc.gov.uk/manuals/eimanual/EIM12979.htm
If so, in this case the £30,000 exemption has already been used (more or less) leaving the PILON taxable in full.

yes - I am aware of that, However - I am not entirely sure of the quantum of the op package. Is the £30000 part of the £50000 or in addition? You have taken the latter view which seems.on reflection, more likely.

jimmo

[Deleted User] wrote:

yes - I am aware of that, However - I am not entirely sure of the quantum of the op package. Is the £30000 part of the £50000 or in addition? You have taken the latter view which seems.on reflection, more likely.

Yes, probably best to wait to see if the OP clarifies.