Paying redundancy payment into private pension

weejas

Bah_humbug said:

Thanks for replying , I'll try and rephrase. Assuming I take the redundancy , they will pay me £90k ( £30K will be tax free ) the other £60k will be subject to tax at 40% so I'll get £36k. If I pay the £36k into a SIPP can I claim back the tax so it becomes £60 K again? The following year I would access the money   use it as income at which point I'd have £12570 tax free , most of the rest at 20% ,the last  bit at %40. Is that possible? Note I will have unused allowance in previous years.

I'm in a similar position with kinda the same question - maybe I'm not understanding the answer correctly

£95k redundancy payment April 26 + some start of year salary. 

I was hoping to live off the £30k tax free amount for a year and put the £39k (£65k less 40% tax) into a sipp. The £39k would receive a 20% uplift so back to nearly £47k in the sipp.
After Apr 27 couldn't I claim back the overpaid amount of tax since I won't have had any 40% taxable earnings?

I can then also start to draw down from the sipp with 25% being tax free

Just trying to work out the most tax efficient way of receiving/retaining the money

DB pension kicks in the following year 

Dazed_and_C0nfused

weejas said:

Bah_humbug said:

Thanks for replying , I'll try and rephrase. Assuming I take the redundancy , they will pay me £90k ( £30K will be tax free ) the other £60k will be subject to tax at 40% so I'll get £36k. If I pay the £36k into a SIPP can I claim back the tax so it becomes £60 K again? The following year I would access the money   use it as income at which point I'd have £12570 tax free , most of the rest at 20% ,the last  bit at %40. Is that possible? Note I will have unused allowance in previous years.

I'm in a similar position with kinda the same question - maybe I'm not understanding the answer correctly

£95k redundancy payment April 26 + some start of year salary. 

I was hoping to live off the £30k tax free amount for a year and put the £39k (£65k less 40% tax) into a sipp. The £39k would receive a 20% uplift so back to nearly £47k in the sipp.
After Apr 27 couldn't I claim back the overpaid amount of tax since I won't have had any 40% taxable earnings?

I can then also start to draw down from the sipp with 25% being tax free

Just trying to work out the most tax efficient way of receiving/retaining the money

DB pension kicks in the following year 

It doesn't get a 20% "uplift".

It gets 25%, £39k from you would become £48,750 in the pension fund.  The £9,750 is 20% of your gross contribution.

Any tax refund would depend on what other taxable income you had in that tax year.

HMRC would automatically refund any overpaid tax in the months after April 2027 but if you don't work again, have (taxable) pension income in that year or claim a taxable benefit then you could make a provisional refund claim yourself before then if you wanted.

kempiejon

MetaPhysical said:

...and we expect Jo Public to understand this stuff and operate tax efficiently????

Tax was never simple and I don't expect JP to be optimal, perhaps we should equip savers to look at interest rates and tax shelters - but loads don't or workers to make good use of pensions.
Once you've a critical mass of money squeezing out some extra from tax is worth taking the time to investigate and learn or take advice?
Once you've more than enough it's less worth it for the sums involved, when you've not got enough it's irrelevant.
I check my numbers and agonise over nuances to extract a few extra bob, pretty sure I'm a minority but the time spent to bone up and make efficient tax choices have enriched me.

Moonwolf

Bah_humbug said:

Hi new to the forum and have a related question to the OP. I am  shortly going to be offered MAVE (voluntary redundancy).
Totalling £90k to leave within this FY.
 I have a DB/ final salary pension and have tried to maximise my lump sum to just under the £268k so I think there is  no point asking my employer  to add any of the £90k to this at this point.

 My question is: could I start a SIPP, pay the redundancy money in  (not the tax free £30K)  the £60K   ( or what's left of the £60K after tax  at 40% & possibly 45%?)  and then claim the tax back so it becomes £60K again in the SIPP ? My plan would then be to draw it down the following FY e.g. 6 April 2026 onwards  as income.   The following year April 27, the DB scheme would begin to pay out as I hit will 60 yrs old  March 2027. The point of doing this being that id only pay 20% tax on most of the 60k as opposed to 40%.

Does that sounds feasible, reasonable, legal?

What is the process for claiming the tax back on what I would manually put in the SIPP? 

Just to add, *IF* you are old enough to take your pension,

Some DB pension schemes (mainly public sector I think) allow you to use your redundancy to offset the capitalisation costs of taking your pension early.

This means that you might be able to take your pension early without an actuarial reduction. An odd quirk of this is that with DB pension annual allowance calculations being based on the value of your pension, as your pension hasn’t changed in value - just when you take that value, you shouldn’t have annual allowance issues.