Redundancy, tax and pension contributions - please help!

AlabamaW

Hi, I have quite a specific question and despite speaking to payroll and HMRC can't find an answer. 

I'm being made redundant with my final day being 19th Jan. On that day I'll receive my final month's net salary of £1830 and 68k redundancy (not a package just a straight payment based on years served). My company will use my normal tax code of 1257L

My EFT salary is 52300 but I am P/T so I will have earned 22400 in the tax year up to Jan and don't plan on earning any more until after April. 

My net monthly pay after workplace and private pension contributions is £1830. 
I've been paying extra into my private pension for the last few months to reduce my taxable income. I want to continue this but have been told I must 'earn' at least minimum wage. can anyone tell me what percentage of my salary I could therefore put into my pension?

Secondly can anyone help me work out how much tax in total I will pay on Jan 19th? And how much of that will be at 40%? I'd like to plan how much I will actually get.

I'm considering putting some of that final payment into my private (not work place as not allowed) pension to avoid paying 40% on the higher taxed portion. How much would I have to put in?

I'd be so grateful if anyone can help as I will never see cash like this again and really want to be sensible with it. 

Confused of Birmingham. 

sheslookinhot

The maximum contribution you can make to a pension is your salary, less any pension contributions you have/may make. Over and above, I also understand £40k is the absolute maximum. If you are not earning, the maximum contribution you make is £2880. (Topped up by HMRC tax relief of £720).

Regarding you redundancy payment, the first £30,000, is tax free. That would leave £38,000 to be taxed. If in England, £20,000 would be taxed at 20% and £18,000 taxed at 40%. Total tax is therefore £11,200.

So £11,200 could be put into your private pension, if you earnings in the tax year allow.

AlabamaW

Thank you so much for replying. 

Regards how much I can put in when working out what pension contributions I've made - does that include my employer contributions for the year as well? 

And secondly re tax - if I've only earned 22k that year would I not be able to 'earn' another 28k at 20% (bringing it to 51000 basic rate limit) before having to pay higher 40% rate?
thank you 

Dazed_and_C0nfused

I've been paying extra into my private pension for the last few months to reduce my taxable income

The vast majority of private pension contributions don't reduce taxable income.  Can you clarify what method you are using to make these contributions?  The normal options are "net pay" and "relief at source".

FatherTireseus

sheslookinhot said:

The maximum contribution you can make to a pension is your salary, less any pension contributions you have/may make. Over and above, I also understand £40k is the absolute maximum. If you are not earning, the maximum contribution you make is £2880. (Topped up by HMRC tax relief of £720).

Actually,  you can put up to 100% of your earnings into a pension scheme, even if that is over £40k per annum.  But tax relief is limited to £40k per annum.  It does get more complicated than that, as if you have put less than £40k into a pension in the last three years you can carry forward any of that unused allowance to be used and still get tax relief.

And yes that allowance is for employee and employer contributions.   If it's a defined benefit scheme it gets more complicated to work out but they are pretty rare these days.

AlabamaW

Dazed_and_C0nfused said:

I've been paying extra into my private pension for the last few months to reduce my taxable income

The vast majority of private pension contributions don't reduce taxable income.  Can you clarify what method you are using to make these contributions?  The normal options are "net pay" and "relief at source".

Hello, I have a Defined Benefit final salary pension which is salary sacrifice and also an Aviva workplace pension which is also (I think)  salary sacrifice. The contribution goes out of my gross pay including a v small contribution from my employer. That's why I've 'earned' only 20k this year as I upped my contributions. 

Dazed_and_C0nfused

AlabamaW said:

Dazed_and_C0nfused said:

I've been paying extra into my private pension for the last few months to reduce my taxable income

The vast majority of private pension contributions don't reduce taxable income.  Can you clarify what method you are using to make these contributions?  The normal options are "net pay" and "relief at source".

Hello, I have a Defined Benefit final salary pension which is salary sacrifice and also an Aviva workplace pension which is also (I think)  salary sacrifice. The contribution goes out of my gross pay including a v small contribution from my employer. That's why I've 'earned' only 20k this year as I upped my contributions. 

Salary sacrifice means you aren't contributing anything to the pension.  You are agreeing to a reduced salary in return for your employer contributing more.

That is why there is no pension tax relief with salary sacrifice pension contributions, they are employer contributions.