Tax on redundancy, Pilon & work place pension

taff27

Hi looking for some advice if possible. I'm taking VR shortly and will receive around £60k redundancy, including 13 weeks Pilon & pro rata leave payment. Although under 55 I am also able to access my workplace pension which I intend to do. This will provide an additional lump sum and an annual pension of approx. £17k which I will start to receive at some point in July. It is my intention/wish to seek some form of employment going forward whether that be part time or full time etc, but I am concerned that if I attempt to enter the jobs market too soon I will be penalised via income tax. Do I need to wait for 13 weeks or am I better taking more time away from employment say 6 months or maybe longer. Is it simply the case that I will be taxed heavily on my redundancy/pension and new job, no matter what I do? How will I be taxed and on what specifically and at what rate? What can I do to lessen the amount of tax I pay? 

[Deleted User]

Very little to go on so far. For example, how much of the £60k is redundancy only? How much will you have earned up until the date you leave? What is a weeks pay? 

On the the basis of what you have provided it does like any further income will be taxed at 40%. Would you rather receive further income after tax paid or no income at all? (It has never ceased to amaze me how many opt for the latter)

taff27

Hi Redundancy will be £45k then £15k will be made up of 13 weeks notice and 2 weeks leave. By start of July including the PILON I'll have earned approx £30k. A weeks pay is just shy of £1k.

[Deleted User]

OK. £30000 of the redundancy is free of tax leaving £15000 taxable. By the start of July you will have £45000 of taxable income (15k from redundancy plus the 30k that you have mentioned). Assuming that you have a code of 1250L (tax free allowance of 12500) then anything earned above 5000 will be taxed at 40%. However, as tax is calculated using average income you will pay 40% on everything you earn immediately before it evens out as we get closer to the end of the tax year. There is no reason that I can see to wait thirteen weeks where you would have no income as opposed to income after tax. You don’t say whether you claim child benefit because that certainly will not be payable this tax year on that income.

taff27

Thanks you for your help in clarifying the situation, it is much appreciated.