Redundancy payment

Marksfish

My Wife has been "lucky enough" in her words to have been made redundant, the final payment has arrived today. We know the first £30k is tax free, we have also opened her a new ISA and invested into that. She is aiming to bank the rest and pay herself a monthly salary until she gets a new job. So, I know her savings allowance will only be £500, but wondering if there are any better tax efficient savings schemes with instant access, or even some notice period?

I also presume that as the payment was taxed, it is classed as salary? So does this mean that any job she gets (even if at the lower tax rate) will be taxed at higher rate until next April? 

Thanks

Dazed_and_C0nfused

Marksfish said:

My Wife has been "lucky enough" in her words to have been made redundant, the final payment has arrived today. We know the first £30k is tax free, we have also opened her a new ISA and invested into that. She is aiming to bank the rest and pay herself a monthly salary until she gets a new job. So, I know her savings allowance will only be £500, but wondering if there are any better tax efficient savings schemes with instant access, or even some notice period?

I also presume that as the payment was taxed, it is classed as salary? So does this mean that any job she gets (even if at the lower tax rate) will be taxed at higher rate until next April? 

Thanks

Pensions and ISA's are the mainstream options.

VCT and EIS investments are other options but typically come with a much greater risk attached to them.

There is no extra "allowance" for interest but if she is a higher rate payer the first £500 would be taxed at a 0% rate.

The taxable redundancy payment would be earnings.

As you haven't provided any information about her income other than the redundancy presumably being at least £30,001 and you believe her to be a higher rate payer it's impossible to know what tax might be due on any future employment.

Higher rate tax might be due but she could easily have some unused tax code allowances that would come into play first.

[Deleted User]

Marksfish said:

My Wife has been "lucky enough" in her words to have been made redundant, the final payment has arrived today. We know the first £30k is tax free, we have also opened her a new ISA and invested into that. She is aiming to bank the rest and pay herself a monthly salary until she gets a new job. So, I know her savings allowance will only be £500, but wondering if there are any better tax efficient savings schemes with instant access, or even some notice period?

I also presume that as the payment was taxed, it is classed as salary? So does this mean that any job she gets (even if at the lower tax rate) will be taxed at higher rate until next April? 

Thanks

Impossible to say without knowing 

a) earnings to date in this tax year
b) the amount of redundancy payment
c) earnings to be received between now and 5th April 2025. 

Marksfish

Dazed_and_C0nfused said:

As you haven't provided any information about her income other than the redundancy presumably being at least £30,001 and you believe her to be a higher rate payer it's impossible to know what tax might be due on any future employment.

Higher rate tax might be due but she could easily have some unused tax code allowances that would come into play first.

She was a 40% tax payer and redundancy was 6 figures, less a lot of tax, but still enough to make her a higher rate earner for the rest of this tax year!!  So potentially, any job she now gets, even if 20k pa would be taxed at 40%

Pension wasn't an option at the time, which would have reduced the liability as she wants to keep as much as possible for as long as possible, in case she doesn't get a job.

[Deleted User]

Marksfish said:

Dazed_and_C0nfused said:

As you haven't provided any information about her income other than the redundancy presumably being at least £30,001 and you believe her to be a higher rate payer it's impossible to know what tax might be due on any future employment.

Higher rate tax might be due but she could easily have some unused tax code allowances that would come into play first.

She was a 40% tax payer and redundancy was 6 figures, less a lot of tax, but still enough to make her a higher rate earner for the rest of this tax year!!  So potentially, any job she now gets, even if 20k pa would be taxed at 40%

Pension wasn't an option at the time, which would have reduced the liability as she wants to keep as much as possible for as long as possible, in case she doesn't get a job.

In that case it is possible that 40% may be a low estimate. Don’t forget that taxable income between £100000 and £125140 has an effect marginal rate of 60% with the tapered loss of the 12570 personal allowance. 

GrubbyGirl_2

Another tax free option is to put the max (£50k) into premium bonds.  Not a guaranteed return but having the max in there gives you a much better chance and of course you can win big.  I do pretty well with them

Dazed_and_C0nfused

Marksfish said:

Dazed_and_C0nfused said:

As you haven't provided any information about her income other than the redundancy presumably being at least £30,001 and you believe her to be a higher rate payer it's impossible to know what tax might be due on any future employment.

Higher rate tax might be due but she could easily have some unused tax code allowances that would come into play first.

She was a 40% tax payer and redundancy was 6 figures, less a lot of tax, but still enough to make her a higher rate earner for the rest of this tax year!!  So potentially, any job she now gets, even if 20k pa would be taxed at 40%

Pension wasn't an option at the time, which would have reduced the liability as she wants to keep as much as possible for as long as possible, in case she doesn't get a job.

She has until the end of March, possibly a bit later depending on provider, to add money to a pension, she doesn't have to do it now.

So could still be an option just before the tax year ends.

chrisbur

Marksfish said:

Dazed_and_C0nfused said:

As you haven't provided any information about her income other than the redundancy presumably being at least £30,001 and you believe her to be a higher rate payer it's impossible to know what tax might be due on any future employment.

Higher rate tax might be due but she could easily have some unused tax code allowances that would come into play first.

She was a 40% tax payer and redundancy was 6 figures, less a lot of tax, but still enough to make her a higher rate earner for the rest of this tax year!!  So potentially, any job she now gets, even if 20k pa would be taxed at 40%

PAYE does not work like that.  The allowances are not given all at once but drip fed into the tax calculation at 1/12 per month.  That means that the tax paid so far (assuming month 4) has only used 1/3 of any tax allowances.  As advised there is likely to be some possibly all of the tax free allowance lost unless some is put into a pension.
Full details of the P45 would allow someone to give a better indication of the tax position.

Marksfish

chrisbur said:

Full details of the P45 would allow someone to give a better indication of the tax position.

I was just after general ideas as not willing to post that sort of info on a public site. Once the dust settles, I will make an appointment for her with out company financial advisor, was just looking for ideas and hopes to check at him.

MetaPhysical

Congrats to the OP's wife for getting a package like this.  I am hoping to get the same

OP, I hope you don't mind me asking a few questions along similar lines on your thread?

The first £30000 of the redundancy package does not appear on your annual taxable earnings P60 at all does it?  Is this entered in a different place on the tax return other than employment income?  Because the "excess" over the 30k is employment income it it so should go on the employment boxes?

I also understand that the whole redundancy package is not subjected to NI at all???

The "excess" over the £30k since it is income can be used to contribute to your pension before tax to keep you below thresholds ( I am a 40% tax payer) but how does that work because you'd normally do this monthly???  Does payroll software allow a larger chunk to go into pension when the redundancy package is issued?

Grumpy_chap

MetaPhysical said:

Congrats to the OP's wife for getting a package like this.  I am hoping to get the same

OP, I hope you don't mind me asking a few questions along similar lines on your thread?

The first £30000 of the redundancy package does not appear on your annual taxable earnings P60 at all does it?  Is this entered in a different place on the tax return other than employment income?  Because the "excess" over the 30k is employment income it it so should go on the employment boxes?

I also understand that the whole redundancy package is not subjected to NI at all???

The "excess" over the £30k since it is income can be used to contribute to your pension before tax to keep you below thresholds ( I am a 40% tax payer) but how does that work because you'd normally do this monthly???  Does payroll software allow a larger chunk to go into pension when the redundancy package is issued?

The most tax efficient way of commuting redundancy to pension is if the employer will agree to Redundancy Sacrifice.