Redundancy tax impact

collinsca

Hi

Im trying to understand the tax impact on a potential redundancy payment - can anyone advise?

Salary is 48k
Redundancy estimate is 100k 

I understand 30k of which is tax free?

Many thanks!

collinsca

To update on this, my understanding is that im a "Basic rate" tax payer - so 20%.
and 30k is tax free..
so that leaves 70k that is taxable...
20% of 70k is 14k...
so 14k taxed of 70k, leaving 56k
so id get 30k...
and then 56k
so 86k total.

im not sure if it is that simple or if there are person tax allowances that also come into play.

thanks

chrisbur

My understanding is that you will get the 30K tax free and the remainder will be added to your taxable pay to date for the tax year that you receive the payment.  So if paid this year there would be some tax due at 40% the exact figure would depend on total taxable pay for this year.  If paid next year depend on total taxable pay for that year but again some at 40%.

daveyjp

You are only a basic rate until you reach the higher rate threshold, after which you will pay 40% tax in England.

If the redundancy was to be paid in this tax year (before 5th April) your income for the year would be about £148,000.

£12,570 0% tax allowance, £30k redundancy allowance.  You are then taxed at 20%/40% on £105,420.

20% between 12,570 and 50,270  40% on the remainder.

https://www.gov.uk/income-tax-rates

You will also take a hit in National Insurance as it will be paid on a monthly income of £70k plus your salary (approx £4k) for the final month!

chrisbur

daveyjp said:

You will also take a hit in National Insurance as it will be paid on a monthly income of £70k plus your salary (approx £4k) for the final month!

If the payment is all redundancy payment then there will be no NI to pay on it; however if the payment is made up of other elements for example pay in lieu of notice then NI would be payable on those parts.

collinsca

Thanks for the responses - very much appreciated.
All understood.
I hate that 40% tax bracket!