Redundancy

aphill24

Hi, next year (Sept 2020) I will be receiving a redundancy package of around £135k.
£30k is tax free leaving £105k to be added to my taxable wages for April 2020 to September 25th 2020 ( around £20k)
£20k + £105k minus the tax free allowance of £12500 = £112,500 of which £37,500 will be taxed at 20% and £55k subject to tax at 40%
I am thinking of putting this £55k into a stakeholder pension that I have alongside my final salary pension.( very small, circa £20 p/w) I currently pay £45 p/week into my DB pension and not sure how much my company also pay but think I need to ask this to be able to work out what I have room for including going back three years.
My plan is to top up my stakeholder pension with the £55k and take it in future tax years where I will keep my total earnings under the 40% threshold. My DB pension will be around the 18k
Does my plan look okay? I will be seeking financial advice going forward from an IFA Just wanted to share my thoughts to see if it sounds okay?

ffacoffipawb

aphill24 wrote: »

Hi, next year (Sept 2020) I will be receiving a redundancy package of around £135k.
£30k is tax free leaving £105k to be added to my taxable wages for April 2020 to September 25th 2020 ( around £20k)
£20k + £105k minus the tax free allowance of £12500 = £112,500 of which £37,500 will be taxed at 20% and £55k subject to tax at 40%
I am thinking of putting this £55k into a stakeholder pension that I have alongside my final salary pension.( very small, circa £20 p/w) I currently pay £45 p/week into my DB pension and not sure how much my company also pay but think I need to ask this to be able to work out what I have room for including going back three years.
My plan is to top up my stakeholder pension with the £55k and take it in future tax years where I will keep my total earnings under the 40% threshold. My DB pension will be around the 18k
Does my plan look okay? I will be seeking financial advice going forward from an IFA Just wanted to share my thoughts to see if it sounds okay?

At £120,000 for the year you will find that you will lose most of the personal allowance which is £12,500 this year and possibly slightly higher next tax year. Hence a lot more tax at 40% will be paid as a result.

For every £2 earned over £100,000 you lose £1 of personal allowance. Your personal allowance is likely to be £2,500 with an extra £10,000 taxed at 40%, i.e. £4,000.

Can possibly be mitigated by pension contributions of £65,000 if enough carry forward exists for you.

badmemory

You may well also have to pay it into your pension earlier in the tax year if done via your employer as redundancy payouts are often made AFTER the employment has terminated. So something worth checking out.

ffacoffipawb

badmemory wrote: »

You may well also have to pay it into your pension earlier in the tax year if done via your employer as redundancy payouts are often made AFTER the employment has terminated. So something worth checking out.

That doesn't matter.

(Been there, done that)

aphill24

Thanks for the replies. I never knew about the personnel allowance being eroded by earning over £100k.
I really do need to seek advice earlier than I thought and pay as much pension contributions as possible to be able to keep under the £100k earning threshold. I have been told we can defer some of the redundancy to the following tax year so as only pay 20% on it.

Dazed_and_confused

£100k earning threshold

It isn't an earnings threshold or even a taxable income threshold. The amount of Personal Allowance is based on "adjusted net income" which takes into account all of your taxable income. Which may just be from your earnings from this job and the taxable redundancy payment.

But of you have (non ISA) interest or dividend income for example this has to be taken into account. You could have say £100,000 from the job/redundancy and £500 interest and although the interest would be taxed at 0% you would lose £250 of your Personal Allowance. Which would add £100 to your tax liability.

Pension contributions would reduce your adjusted net income but don't always reduce your taxable income - if you contribute to a relief at source scheme your taxable income remains the same but your basic rate tax band is increase so you pay less higher rate tax.