Taking VR - leaving 19/5

kitkat68

Hi All
I've worked for my employer for 36 years and am taking redundancy this year.
my leave date is 19th May - the package is greater than £30k so I am aware I have to pay tax on the balance.
My 1st question is will I pay tax at the higher rate? If so and I don't earn anything else this tax year will I be able to claim some/all of the tax back?
My 2nd question is regarding what to do with the redundancy pay - I have some savings already and was planning on opening another ISA - probably a fixed rate one, but I think there will be some extra money - once I've used up the cash ISA allowance what is best to do with the rest?
Thanks for reading  
Cheers JR

chrisbur

Question 1
Possibly it will depend on the amount you are paid. You will only have some of your allowances at that point, assuming you are paid on 19/5 that will be in month 2 so you will have 2/12 of your tax free allowance and 2/12 of your 20% band allowance etc.
Your actual tax due will be calculated at the tax year end and any over-paid will be refunded.  If you do work after redundancy hand in your P45, your tax position will then be recalculated as you are paid by your new employer over the following tax months. In some circumstances an earlier tax refund is possible details here.
https://www.gov.uk/government/publications/income-tax-claiming-tax-back-when-you-have-stopped-working-p50

kitkat68

Hi there
Thanks for the reply - apologies for the delay in my response, I've struggled to log in...
I will have had normal salary for April and  I'm not sure how May will look as PILON, redundancy and any holiday pay to come across May and June..not sure what comes in what month...
Total severance will be around £100k before tax - I can't work out how much tax I will pay against the remaining £70k?
I have to complete a tax return as I have a rental property - will it all get taken into account then?
I'm not planning on working immediately, having a few months off at least as I've always worked since leaving school...assuming I don't work again at all for this tax year how does the refund of tax get calculated as I suspect I'll overpay as currently am in the 40% tax bracket as salary is £57k and I make £8k income on the other house..
Thanks again JR

clareanddavid

Hi
Before you do anything, consider if you need the money now or if you can wait until you are 55. If so, it is far more tax efficient to put it into a pension, which you can then drawdown from 55 in a variety of ways. Your tax liability reduces massively and you get a tax boost on your pension pot. I know, cos I am currently waiting for £27.5k to be reimbursed from HMRC following my employment settlement in January. Fortunately, I only have to wait until next January to get my hands on it. Speak to a pension advisor or one of the free pension advice services. It cost me about £2k to have a financial advisor to set up a fund, money well spent.   

Wonka_2

Sometimes usernames give a clue to the situation - or maybe I just make 2+2=5

Assuming with 36yrs notice the OP must be at least 52 - but if born in 68 then they're either 54 or 55 in which case the pension situation is very relevant.

And if the other part of username has any reference to the employer then they give (or at least used to) very good financial advice for VR leavers - specifically in long service situations where payment was (often significantly) over £30k

kitkat68

I’m 54, 55 in October - I don’t need all the money now…but I think I’ve missed the boat on putting any of it into my pension… they asked me a good 8 weeks ago or so and I said no! 

I work for a large U.K. drugstore and they haven’t been very good with support…I’m one of the last to leave in a round of redundancies announced last year in the summer so even the HR team have already left who were handling the individuals leaving 🤣

I guess I’ll have to accept paying the tax then see what I overpay next year?

artyboy

You may have missed the boat in terms of a nice easy contribution into your work pension, but there's nothing stopping you opening a separate SIPP and contributing some of your redundancy payment into that.

Just remember that you'll only get basic rate tax relief automatically added and you'll have to claim any higher rate relief via self assessment.

pjcox2005

A large pension contribution has to be the way to go, saves 40% or more tax and given age you’ll be able to access it quickly with an element tax free and the rest I expect still at a lower rate

lincroft1710

pjcox2005 said:

A large pension contribution has to be the way to go, saves 40% or more tax and given age you’ll be able to access it quickly with an element tax free and the rest I expect still at a lower rate

The OP was due to leave the day before you posted this

kitkat68

Hi all, well I left last Friday and the severance has been paid today…
I could cry at the amount of tax I’ve paid…but hey if I don’t get another position I should get some back next year…