Voluntary redundancy and retirement

kidmugsy

bigadaj wrote: »

You are limited to your income for the year, so presumably £36k from what you have stated.

Are you certain? If someone gets severance/redundancy pay of £100k, with the first 30k tax-free, on the face of it the other £70k could be viewed as taxable earnings. "could be": but is it?

xylophone

Re redundancy and relevant earnings, see

http://www.rossmartin.co.uk/private-client-a-estate-planning/income-losses-claims-reliefs/1034-relevant-earnings-for-pensions-purposes


"The following earnings are relevant UK earnings:

Any part of a redundancy payment which exceeds the £30,000 tax exempt threshold under section 403(1) ITEPA 2003."

See also

http://adviser.royallondon.com/pensions/technical-central/information-guidance/contributions-and-tax-relief/member-contributions-tax-relief-and-annual-allowance/

xylophone

Is the firm paying for independent financial advice?

Otherwise http://www.thepfs.org/yourmoney/find-an-adviser/ might be helpful.

CapricornLass

Hi, just gone through this myself last December.

Yes, your redundancy pay does count as taxable income.

And no, you can't off-set any of your personal allowance against it.

onlyroz

xylophone wrote: »

Re redundancy and relevant earnings, see

http://www.rossmartin.co.uk/private-client-a-estate-planning/income-losses-claims-reliefs/1034-relevant-earnings-for-pensions-purposes


"The following earnings are relevant UK earnings:

Any part of a redundancy payment which exceeds the £30,000 tax exempt threshold under section 403(1) ITEPA 2003."

See also

http://adviser.royallondon.com/pensions/technical-central/information-guidance/contributions-and-tax-relief/member-contributions-tax-relief-and-annual-allowance/

So yes, the whole £70k does count as earnings. But can it all go into a pension at once? There is the 40k annual limit but can we not add to this the unused amounts from the last few years?


From my understanding then, the £70k will be taxed. Let's say that we end up with £50k after tax. We then put the whole £50k into a SIPP. 20% tax relief will automatically be added. We then submit a tax return to claim the rest of the tax relief, which will then be added to the pension pot bringing it back up to £70k.


Is that right?

onlyroz

xylophone wrote: »

Is the firm paying for independent financial advice?

Otherwise http://www.thepfs.org/yourmoney/find-an-adviser/ might be helpful.

I've contacted somebody local I found on that list. No response yet.

xylophone

http://www.hl.co.uk/pensions/sipp/pension-carry-forward

may be of interest.

atush

onlyroz wrote: »

So yes, the whole £70k does count as earnings. But can it all go into a pension at once? There is the 40k annual limit but can we not add to this the unused amounts from the last few years?


From my understanding then, the £70k will be taxed. Let's say that we end up with £50k after tax. We then put the whole £50k into a SIPP. 20% tax relief will automatically be added. We then submit a tax return to claim the rest of the tax relief, which will then be added to the pension pot bringing it back up to £70k.


Is that right?

What you need to do (with t he help of employer perhaps) is find out how much of his leftover allowance (ie 40K or full salary) is left over from t he last 3 years. And how much was used up this year. And mop up as much of the 70K as is possible.

bigadaj

kidmugsy wrote: »

Are you certain? If someone gets severance/redundancy pay of £100k, with the first 30k tax-free, on the face of it the other £70k could be viewed as taxable earnings. "could be": but is it?

Yes, it's the total earnings, these were stated as £36k but would include the total taxable earnings.

zagfles

onlyroz wrote: »

So yes, the whole £70k does count as earnings. But can it all go into a pension at once? There is the 40k annual limit but can we not add to this the unused amounts from the last few years?

Yes. But you need to find out what those unused amounts are. Sounds like the works pension was a DB scheme so this is quite hard to work out, but you may have pension statements that tell you. What you need is the "pension input amounts" for the "pension input periods" - note that before last July pension input periods didn't have to be the tax year. There's also a transition to align the PIP with the tax year resulting in last tax year being split into two.

But unless he made big contributions, got a big payrise, or was on a high income it's likely he'll have loads of spare allowance to carry forwards.

From my understanding then, the £70k will be taxed. Let's say that we end up with £50k after tax. We then put the whole £50k into a SIPP. 20% tax relief will automatically be added. We then submit a tax return to claim the rest of the tax relief, which will then be added to the pension pot bringing it back up to £70k.


Is that right?

You'll get the £70k taxed at his marginal rate, a lot of it at 40%. How much depends on other earnings. Say you get £50k net.

You pay £50k into a SIPP and it'll be grossed up by basic rate to £62.5k. You can then claim the 40% tax relief in his tax return but it goes to him and not the SIPP. And it'll likely be after the end of the tax year, so he can't put it in the SIPP next year if he has no earnings. Well only £2880 net.

If you want the whole £70k gross in the SIPP, you need to put in £56k net. You can find the extra temporarily from savings etc till you get the tax back.