Tax implications on redundancy payment

Mike2527

Hi,

I was informed yesterday that I’m being made redundant at the end of this year.  Fortunately the severance package is sizeable given my tenure and current salary.  That said I need some clarity on my tax liabilities and how to deal with them.  I believe the gross severance payment will be c.£250k and by the end of the 2023 my gross pay will be £77k.  

I know that the first £30k of the severance is not taxed and the remainder at 40% I assume.  That said given my gross pay at the end of 23 will be £327k, I’m assuming that there will be other tax liabilities that I’ll need to consider.  

Any thoughts on this and how best to avoid them?  I assume I can pay into my pension & also back date for the last three years? Having said that I will need cash to live on aswell. 

All advice welcome.  Thanks. 

Linton

You cannot back-date a pension contribution to a previous tax year.  Also, there is a £60K limit to total pension contributions, including employer contributions, in any one tax year but you can carry forward any unused part of this for 3 years. 

PS you  can exceed the Annual Allowance of £60K but you lose the tax relief.  See the Tax forum.