Minimising tax on redundancy payment

TEC6245

 I am already in excess of the pension lifetime allowance and having applied for individual protection am just starting to take pension from previous company of £48K/year as there were minimal penalties for taking early.  I am taking voluntary redundancy later this year, and many of my colleagues are putting money into their pension via the company SIPP to minimise the tax being paid on the lump sum.  However, I understand that because of the higher tax for being over lifetime allowance this might not be worthwhile for me.  Can anyone advise if I should look at this, or are there other options that would minimise the tax payable on the lump sum over the £30K tax free allowance?  I realise I am in a very fortunate position, but the thought of giving up so much in tax feels like I am being penalised for building up a good pension.  I am adding to the SIPP at the moment as the company gives 10% of salary as a benefit and then matches the 3% I pay in with a further 3%, so I figure a 16% input for 3% pre tax pay cancels the extra tax I will pay when I take the benefit.  Is this right?

george4064

Maybe consider VCTs? They are tax efficient but seperate to a pension.

Dazed_and_C0nfused

You could make some charitable donations through the Gift Aid scheme.

They are quite tax efficient as they increase the amount of basic rate tax you can pay, which in turn reduces the amount of higher rate tax payable.

For example if you gift £1,000 the charity can claim £250 tax relief making a gross donation of £1,250.

Your basic rate tax band would increase to £38,750 meaning an extra £1,250 is taxed at 20% rather than 40%.  Saving you £250 in tax.

So your chose charity has £1,250 for a real cost to you of £750.

getmore4less

Might have been an idea to delay the pension to keep the 2021-2022 tax base lower if there is a large redundancy payment coming. 

TEC6245

Unfortunately I couldn't delay pension- I don't plan to work to 65 and the pension comes with very generous provision for long service to limit reduction at early retirement, but only if I take it as same time as leaving current company (which was spin off from one with DB scheme)  Will look into VCTs, never come across them before.  I do give to charity and agree, nice opportunity to increase this year.  Thanks all for the advice

pjread

VCT's and EIS/SEIS might be the answer, depending on your risk tolerance. 

And yeah, I'd definitely keep contributing 3% for a 16% effective input, even if you do get hit with 55% tax you're still well up.