Tax on redundancy

NewIslington

I am due to be made redundant in June. My severance payment will be £58000 on top of my wages that month, there is no PILON or holiday pay to be added. The whole £58000 is severance payment. 

I have had conflicting information on how it will be taxed. The first £30k I know is free of tax but I am not sure of how the remaining £28k will be taxed. I have been told by one person that it will be taxed at 20% and I have also been told that the first £3730 will be taxed at 20% and the remaining £24270 will be taxed at 40%. 

Can anyone help clarify?

MattMattMattUK

NewIslington said:

I am due to be made redundant in June. My severance payment will be £58000 on top of my wages that month, there is no PILON or holiday pay to be added. The whole £58000 is severance payment. 

I have had conflicting information on how it will be taxed. The first £30k I know is free of tax but I am not sure of how the remaining £28k will be taxed. I have been told by one person that it will be taxed at 20% and I have also been told that the first £3730 will be taxed at 20% and the remaining £24270 will be taxed at 40%. 

Can anyone help clarify?

Not without knowing how much you will earn in that tax year, which also depends on when you start new employment and what you are paid. Do you intend to start a new job, do you have one lined up?

If you do not need the money as you have a new job to go to then it may make sense to put everything above the £30k limit into your pension.

daveyjp

It will be taxed as an extra £28,000 of salary in June. Whether the 40% kicks in depends on your annual salary and how much you have been paid up until June.

NewIslington

daveyjp said:

It will be taxed as an extra £28,000 of salary in June. Whether the 40% kicks in depends on your annual salary and how much you have been paid up until June.

daveyjp said:

It will be taxed as an extra £28,000 of salary in June. Whether the 40% kicks in depends on your annual salary and how much you have been paid up until June.

MattMattMattUK said:

NewIslington said:

I am due to be made redundant in June. My severance payment will be £58000 on top of my wages that month, there is no PILON or holiday pay to be added. The whole £58000 is severance payment. 

I have had conflicting information on how it will be taxed. The first £30k I know is free of tax but I am not sure of how the remaining £28k will be taxed. I have been told by one person that it will be taxed at 20% and I have also been told that the first £3730 will be taxed at 20% and the remaining £24270 will be taxed at 40%. 

Can anyone help clarify?

Not without knowing how much you will earn in that tax year, which also depends on when you start new employment and what you are paid. Do you intend to start a new job, do you have one lined up?

If you do not need the money as you have a new job to go to then it may make sense to put everything above the £30k limit into your pension.

My annual salary is £42000 so the payment will take me in to the 40% zone. I probably won’t work for a few months. 

molerat

daveyjp said:

It will be taxed as an extra £28,000 of salary in June. Whether the 40% kicks in depends on your annual salary and how much you have been paid up until June.

40% kicks in at personal allowance + £9425 YTD (£12570 if on 1257) at June so definitely some 40% will be deducted. In fact some 45% would likely be deducted as that will kick in at £34430 YTD on 1257.