Redundancy and Pension

tigerspill

Hi,

I have elected to take redundancy and the terms are pretty good.

We have a good AVC scheme whereby the 25% TFLS is based on the FULL pension value including 20 x the DB part. So I can get all my AVCs out tax free.

So I want to put as much into this as possible.

My leaving date will be 30 April 2019 and the payment is likely to be with me towards the end of May.

I can not put any pension into this AVC after I leave on 30/4 when I have the money.

My question is (assuming the scheme allows me to do this) Can I put a big lump sum into the pension (near the 40K annual limit) in April (new tax year) even though at that point I have not actually received the income (from savings). i.e. put it into pension in anticipation of the payment.

The scheme does allow lump sum payments so hope this aspect might be OK - will need to check.

Linton

The check of prnsion payments against earned income is made over the whole tax year, so you can pay money into a pension in anticipation of future earnings. The first £30k of redundancy pay which is tax free does not count as earnings.

kidmugsy

Are you saying that your April pay, plus your redundancy money, minus your £30k tax-free part of the redundancy money, plus your DB pension payout May 2019 - March 2020, will exceed £40k?

Why a £40k limit: will you have no carry-forward of unused annual allowance?

Presumably you'll already have used up all your 2018/19 capacity?

tigerspill

Thanks Linton.

This would be more after the £30K. I thought it might be considered as part of the whole year so that is good.
When everything is confirmed, I just need to understand how I actually do this. They may require a cheque. Not sure if they can do inter bank payments.

The reason for my question was because when I have used monthly payments from my salary (sal sac), I couldn't put my whole pay in. There was a limit (maybe something to do with minimum earnings or something - cant remember what came up on the screen).

tigerspill

kidmugsy wrote: »

Are you saying that your April pay, plus your redundancy money, minus your £30k tax-free part of the redundancy money, plus your DB pension payout May 2019 - March 2020, will exceed £40k?

Why a £40k limit: will you have no carry-forward of unused annual allowance?

Presumably you'll already have used up all your 2018/19 capacity?

I will try to clarify.

I will get paid in April as usual and this will be my last salary payment.

Sometime later (they say up to one month I will get my redundancy money. £30K will be tax free and I am trying to work out what to do with the rest. I get the normal tax free allowance of £12500. I am assuming everything after that is taxed in the normal way as income.
My objective is to make use of the specific AVC scheme before 30th April - even when I dont actually get the redundancy money in my pocket until after that date.

On the limits - I am maxed out including carry over. This has been a focus for me in the past few years.

Linton

tigerspill wrote: »

Thanks Linton.

This would be more after the £30K. I thought it might be considered as part of the whole year so that is good.
When everything is confirmed, I just need to understand how I actually do this. They may require a cheque. Not sure if they can do inter bank payments.

The reason for my question was because when I have used monthly payments from my salary (sal sac), I couldn't put my whole pay in. There was a limit (maybe something to do with minimum earnings or something - cant remember what came up on the screen).

Under salary sacrifice you don’t make the pension contribution. It is an employers contribution.
What is left is your salary which cannot be less than minimum wage. However if you are making the contribution this is not a issue, what you do with your money is up to you.

Paul_Herring

Can I put a big lump sum into the pension (near the 40K annual limit) in April (new tax year) even though at that point I have not actually received the income (from savings). i.e. put it into pension in anticipation of the payment.

Presuming you will actually get paid the amount, as relevant earnings, you put into the pension, in whole of the 2019/20 tax year, yes.

tigerspill

Paul_Herring wrote: »

Presuming you will actually get paid the amount, as relevant earnings, you put into the pension, in whole of the 2019/20 tax year, yes.

Thanks.

So I guess it comes under the third point -
Any part of a redundancy payment which exceeds the £30,000 tax exempt threshold under section 403(1) ITEPA 2003.