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Tax on redundancy

2»

Comments

  • You still just have a Personal Allowance of £12,500, you cannot have one greater than that.

    But if you are not classed as a higher rate payer in the 2020:21 tax year then you will get £250 knocked off your tax bill courtesy of the Marriage Allowance tax deduction.
    Helpful, thank you. I assume if I get another job - fingers crossed - this will push me into a higher rate tax bracket, is that right? Given my redundancy payment?
  • Quite possibly.  In which case you would eventually lose the Marriage Allowance.

    HMRC review that after the end of the tax year when your actual income details are known, they wouldn't for example take it off you just because you received taxable pay of £49k in the first month of the tax year.
  • Thank you, I’m determined to understand it fully. Appreciate your time and insight everyone.
  • Jeremy535897
    Jeremy535897 Posts: 10,745 Forumite
    10,000 Posts Fifth Anniversary Photogenic Name Dropper
    Even if your figures are correct, and ignoring the cash flow disadvantages of a large deduction on payment followed by a refund later, your tax liability for 2020/21 will be as follows:
    Redundancy taxable £49,000 plus other income and mortgage benefit £10,130 less personal allowance £12,500 = £46,630 (not sure where the £46,338 you have comes from) taxable income after personal allowance.
    Income tax (assuming you don't live in Scotland) is £37,500 at 20% = £7,500 + £9,130 at 40% = £3,652 totalling £11,152. Pension contributions may reduce this, and there will be a month's class 1 NIC to pay of about £1,300.
    Thanks, Jeremy. As the mortgage is a BIK my tax allowance is 8,970 rather than 12.5k. Where does the 49k come from - forgive me? I am considering pension payments to reduce my tax liability.
    As others have said, your personal allowance is £12,500. Your benefit is treated as income, hence the £10,130 figure (benefit plus other income).

    On your figures, you will be a higher rate taxpayer in 2021/22, even if you don't get another job, because you start paying higher rate tax when your income before, not after, personal allowance hits £50,000 (worse in Scotland).
  • getmore4less
    getmore4less Posts: 46,882 Forumite
    Part of the Furniture 10,000 Posts Name Dropper I've helped Parliament
    Even if your figures are correct, and ignoring the cash flow disadvantages of a large deduction on payment followed by a refund later, your tax liability for 2020/21 will be as follows:
    Redundancy taxable £49,000 plus other income and mortgage benefit £10,130 less personal allowance £12,500 = £46,630 (not sure where the £46,338 you have comes from) taxable income after personal allowance.
    Income tax (assuming you don't live in Scotland) is £37,500 at 20% = £7,500 + £9,130 at 40% = £3,652 totalling £11,152. Pension contributions may reduce this, and there will be a month's class 1 NIC to pay of about £1,300.
    When did NI become due on redundancy excess? 
  • Even if your figures are correct, and ignoring the cash flow disadvantages of a large deduction on payment followed by a refund later, your tax liability for 2020/21 will be as follows:
    Redundancy taxable £49,000 plus other income and mortgage benefit £10,130 less personal allowance £12,500 = £46,630 (not sure where the £46,338 you have comes from) taxable income after personal allowance.
    Income tax (assuming you don't live in Scotland) is £37,500 at 20% = £7,500 + £9,130 at 40% = £3,652 totalling £11,152. Pension contributions may reduce this, and there will be a month's class 1 NIC to pay of about £1,300.
    When did NI become due on redundancy excess? 
    April 2020.  Although only for the employer, not the employee.
  • Jeremy535897
    Jeremy535897 Posts: 10,745 Forumite
    10,000 Posts Fifth Anniversary Photogenic Name Dropper
    Even if your figures are correct, and ignoring the cash flow disadvantages of a large deduction on payment followed by a refund later, your tax liability for 2020/21 will be as follows:
    Redundancy taxable £49,000 plus other income and mortgage benefit £10,130 less personal allowance £12,500 = £46,630 (not sure where the £46,338 you have comes from) taxable income after personal allowance.
    Income tax (assuming you don't live in Scotland) is £37,500 at 20% = £7,500 + £9,130 at 40% = £3,652 totalling £11,152. Pension contributions may reduce this, and there will be a month's class 1 NIC to pay of about £1,300.
    When did NI become due on redundancy excess? 
    Whoops, yes, only on PILONs and holiday pay.
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