Redundancy into pension

lisyloo

Also on the cutting taxes board.

I worked until December then got made redundant.
I've lived off my notice pay whilst job hunting, now have a job and have about £17k redundancy money which was never taxed.
I'd like to put this into a pension.

My questions is can I put it in as earned income (I earned > £17k taxed income between April and December).

I believe I can do this becuase HMRC look at things on a yearly basis but I want to check because it's counterintuitive.

In reality I lived off my earned income between Apr - Dec and it's the redundancy money I have left.

kidmugsy

lisyloo wrote: »

In reality I lived off my earned income between Apr - Dec and it's the redundancy money I have left.

That doesn't matter a hoot: one £17k is as good as another.

lisyloo wrote: »

I worked until December then got made redundant.
I've lived off my notice pay whilst job hunting, now have a job and have about £17k redundancy money which was never taxed.
I'd like to put this into a pension.

My questions is can I put it in as earned income (I earned > £17k taxed income between April and December).

The sums: take your earnings from April to Dec, add on any PILON or other taxable pay from your redundancy, and add on any pay to be received from your new job before 6/4/16. From that subtract any pension contributions you made, or will make, in tax year 15/16. That tells you your maximum new gross contribution for 15/16. The maximum amount you pay the provider, the net contribution, is 0.8 times that.

But, but, but: if you are aiming to avoid higher rate tax, do it before March 16th (Budget day). If, however, it's only basic rate tax that you'd be avoiding, don't contribute before Budget day: there may be announcements that would make it better for a basic rate payer to contribute in 16/17 or 17/18 instead.

lisyloo

I think I also need to deduct £10,600 personal allowance, but it's all good.

Interesting what you say about budget day. I was hoping to do it soon whilst stock markets are low.
Is there anything specific expected for basis rate tax payers?

Previn

kidmugsy wrote: »

That doesn't matter a hoot: one £17k is as good as another.




The sums: take your earnings from April to Dec, add on any PILON or other taxable pay from your redundancy, and add on any pay to be received from your new job before 6/4/16. From that subtract any pension contributions you made, or will make, in tax year 15/16. That tells you your maximum new gross contribution for 15/16. The maximum amount you pay the provider, the net contribution, is 0.8 times that.

But, but, but: if you are aiming to avoid higher rate tax, do it before March 16th (Budget day). If, however, it's only basic rate tax that you'd be avoiding, don't contribute before Budget day: there may be announcements that would make it better for a basic rate payer to contribute in 16/17 or 17/18 instead.

I think the key here is "taxable" income..as stated it came tax free, therefore shouldn't be included in the calculation above.

lisyloo

Yes, so say

£19,300 last job
£5,700 taxable notice pay
£3,650 expected in new job
= £28,650

Minus 10,600 personal allowance = 18050 taxable at basic rate

So should mean I get almost all of my tax back :-)

Thanks guys you confirmed It works how I thought.

I would have expected that even if the flat rate of relief is increased that it's capped at the tax you have actually paid that year and I'm going to be pretty close, but it may be sensible yo wait until my feet are under the desk.

Previn

lisyloo wrote: »

Yes, so say

£19,300 last job
£5,700 taxable notice pay
£3,650 expected in new job
= £28,650

Minus 10,600 personal allowance = 18050

So should mean I get almost all of my tax back :-)

You can pay it all in (upto 80% net) including your £10600 allowance if its going into a SIPP if you want to so you get tax back on income you never paid tax on in the first place.
So potentially pay in £22290 max net.

lisyloo

Wow I didn't know that.
I only have the £17k but thanks for the info, I didn't know you could get tax relief that you hadn't paid.

kidmugsy

lisyloo wrote: »

Wow I didn't know that.
I only have the £17k but thanks for the info, I didn't know you could get tax relief that you hadn't paid.

You can. Until the Budget anyway.

kidmugsy

If you don't already have a personal pension you could always open one now for some modest amount, and then it'll be all set up for when you want to add the extra. The firm we use, Hargreaves Lansdown, accepts contributions over the phone using your debit card. I dare say that some of the competition can do so too. If you go to the Monevator blog, you'll see their table about the costs of the different providers.

kidmugsy

By the way, before you pour money into a pension, are you happy that you've got a big enough emergency fund stashed somewhere? Say 6 months worth of outgoings.

atush

Yes, I agree.

I assumed you already had emergency cash and just used notice pay instead. But if you didn't, do hold back some of the 17K for this.