Severance pay and tax

Dizzyb99

I am wondering if anyone might be able to help or point me in the right direction to get some information.
I have been toying with retiring from my current job for the past 12 months. I was 60 in November and always said I would probably go then if could.
 I have unexpectedly just been offered severance pay of 38,000 of which 30,000 is tax free. I can also access my pension which will be 23,000/year before tax, along with a tax free lump sum of 16,000.
I will receive my severance at the end of July and can then apply for my pension.
I am a bit confused however as to whether the 2 lump sums which will total approx. 52,000 with be counted as income and will take me into the 40% tax bracket when I begin to claim my monthly pension.
I would really appreciate if anyone could throw a little light on this for me, I have to let HR know my decision by Wednesday and for me it feels like a gift, just unsure if there are other things I should consider.

Dazed_and_C0nfused

Dizzyb99 said:

I am wondering if anyone might be able to help or point me in the right direction to get some information.
I have been toying with retiring from my current job for the past 12 months. I was 60 in November and always said I would probably go then if could.
 I have unexpectedly just been offered severance pay of 38,000 of which 30,000 is tax free. I can also access my pension which will be 23,000/year before tax, along with a tax free lump sum of 16,000.
I will receive my severance at the end of July and can then apply for my pension.
I am a bit confused however as to whether the 2 lump sums which will total approx. 52,000 with be counted as income and will take me into the 40% tax bracket when I begin to claim my monthly pension.
I would really appreciate if anyone could throw a little light on this for me, I have to let HR know my decision by Wednesday and for me it feels like a gift, just unsure if there are other things I should consider.

What £52,000?

Do you mean will the tax free severance and pension tax free lump sum be taxable 🤔

If they are tax free what would make them taxable?

FIREDreamer

Dizzyb99 said:

I am wondering if anyone might be able to help or point me in the right direction to get some information.
I have been toying with retiring from my current job for the past 12 months. I was 60 in November and always said I would probably go then if could.
 I have unexpectedly just been offered severance pay of 38,000 of which 30,000 is tax free. I can also access my pension which will be 23,000/year before tax, along with a tax free lump sum of 16,000.
I will receive my severance at the end of July and can then apply for my pension.
I am a bit confused however as to whether the 2 lump sums which will total approx. 52,000 with be counted as income and will take me into the 40% tax bracket when I begin to claim my monthly pension.
I would really appreciate if anyone could throw a little light on this for me, I have to let HR know my decision by Wednesday and for me it feels like a gift, just unsure if there are other things I should consider.

£8,000 of the severance is taxable.

The first £30,000 is tax free and your pension lump sum is also tax free.

Only the £23,000 pa pension is taxable (but NI is not applied to pension income).

eskbanker

In terms of taxable income for the 2025/26 tax year, you wouldn't earn the full £23K of pension if drawing it from July, but will presumably be earning a salary for the first few months....

Brie

It's a bit of a jackpot to be getting severance just when you want to retire!   I was very jealous of a colleague who got that but then, lo and behold, the same came my way a few years later.  Lovely!!!  Enjoy your retirement.  

And remember you may not be obliged to have the tax free lump from your pension.  Obviously nice as you have a few years til the state pension comes along.

Peter999_2

You've hit the jackpot there.    Similar thing happened to one of my colleagues.    We had to lose 10% of our workforce so the boss put it in for him (even though he already had a retirment date).     HR never realised and he got it - he didn't really understand it all though when he told me, obviously I let him know that he owed our manager several hundred pints.

Dizzyb99

Dazed_and_C0nfused said:

Dizzyb99 said:

I am wondering if anyone might be able to help or point me in the right direction to get some information.
I have been toying with retiring from my current job for the past 12 months. I was 60 in November and always said I would probably go then if could.
 I have unexpectedly just been offered severance pay of 38,000 of which 30,000 is tax free. I can also access my pension which will be 23,000/year before tax, along with a tax free lump sum of 16,000.
I will receive my severance at the end of July and can then apply for my pension.
I am a bit confused however as to whether the 2 lump sums which will total approx. 52,000 with be counted as income and will take me into the 40% tax bracket when I begin to claim my monthly pension.
I would really appreciate if anyone could throw a little light on this for me, I have to let HR know my decision by Wednesday and for me it feels like a gift, just unsure if there are other things I should consider.

What £52,000?

Do you mean will the tax free severance and pension tax free lump sum be taxable 🤔

If they are tax free what would make them taxable?

I'm sorry I meant 52,000 would come from 30,000 + 6,000 (from the taxable 8,000) + 16,000 from pension lump sum.

Dizzyb99

Thank you all for you replies and help.
 This was what I initially thought, but then somebody mentioned tax to me and I completely took a wobble. Having read your replies it seems obvious that a tax free lump sum would not incur tax
Thank you again