Severance Pay

Equaliser123

Hi. Wonder if someone can give a bit of tax advice.

I will be taking a severance package in January or February next year. My earnings for the 2017/18 tax year are about £100k.

The severance pay is in the region of £120k.

I am inclined to ask for the severance pay to be deferred to the 2018/19 tax year in order that I do not lose my personal allowance for this year.

I am not sure when I will be able to find another job hence it seems better to avoid the 45% tax rate this year and to try (pension contributions) and mitigate the impact on my personal allowance.

If I find a job in the next tax year, I appreciate that the personal allowance and 45% tax rate may apply then.

Many thanks.

BoGoF

Is there a question in there?

Equaliser123

BoGoF wrote: »

Is there a question in there?

Yes. Is there any reason not to defer the payment.

BoGoF

Assuming your employer is agreeable then the benefits of doing so are obvious but perhaps HMRC would have questions if it is too blatant, eg if you left in January why would it take 3 months to pay you?

Equaliser123

Thanks. I'm just sanity-checking it.

HMRC recognise that the payment can be deferred for many reasons or that severance can be paid in instalments.

Unless anyone can see a downside, I'll proceed on that basis.

BoGoF

Only thing I would consider is maxing pension contributions this year

silvercar

Unless anyone can see a downside, I'll proceed on that basis.

If you think the company may go bankrupt.

Equaliser123

Thanks all. Fortunately the company is enormous and publicly listed so little chance of an insolvency event within the timeframe.

Comms69

Surely when it's £120k at stake a £300 appointment with an accountant would be better than people on a forum?

silvercar

The first £30k of redundancy pay is tax free, so it would do no harm to have the £30k paid in this tax year.