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Unfortunately I may well soon be made redundant.
My currently salary is £46k which puts me in the 20% tax bracket.
My redundancy package will be £58k. As I understand this means that £30k of this will be income tax exempt, however the portion over £30k will be taxed 'at my normal rate'
Does this mean it will actually get taxed at 40% as I in the course of this financial year I will earn more than £50k, or because my normal annual earnings would be <£50 I am taxed at 20%?
Thanks in advance!
4 at 20% and 24 at 40% I guess
Time for some AVCs I feel
Time for some AVCs I feel
Thats an interesting point !
I would need my employer to calculate the tax breakdown for me to them be able to offset with AVCs. Then theres can this all be done in the last months payment. Probably not given this is the NHS we are talking about!
Thought it was straight 20% as it's not part of the P45/P60, so 28k x 0.8 + 30k would be 52.4k?
You can make additional pension payments if you're in the NHS:
When is your likely last day of employment? If you can make it into the new financial year you maybe able to keep much more of it. I believe my father did something similar as he negotated the redundancy payment was in the next FY so was taxed lower (and he had a break of employment looking for the next role) IANAE!
You'll pat tax at the relevant rate as it's classed as earnings - e.g. part of the redundancy might be back pay, holiday pay etc. HMRC guidance is quite thorough.
We're half way through the tax year now. If you got made redundant now you'd only have been paid 23K this tax year so you have 27K headroom before the 40% kicks in - provided you don't get a new job before April.
If an AVC can't be made to work then you can pay into a SIPP and claim relief on your tax return.
Things may change after the budget.
Thanks for all the info. As it stands it looks like I will go at the end of December.
I need to read up on whether the NHS has to match/contribute to any additional pension I put in
Yes you pay tax on your total income for the year including any redundancy payment over £30k. I was clobbered with that a few years ago. Good idea to put a lump sum into your pension to avoid the tax if you can. Just remember you also pay tax when you take your pension.
QQ. This might be coming my way soon too so would like to check. The package will be nigh on 2 years pay and will therefore be in the higher & additional tax bracket. With the potential to take early "retirement" would it be best to make an AVC to get the tax relief of the 40/45% which I can claim back on my tax return so long as its within the same financial year as I depart?
best to make an AVC to get the tax relief
Almost certainly yes. But for those who don’t want to take financial advice from some bloke on the internet, it really is worth talking to an IFA about this, and the process for then getting your hands on your retirement money with the least tax.
When is your likely last day of employment? If you can make it into the new financial year you maybe able to keep much more of it.
this - I managed it twice by luck with my redundancies both falling just around April..
There did also use to be some strange rules around the elements of the payment that were redundancy, and those that were Pay In Lieu of Notice (PILON). If your contract said you were entitled to PILON then it was taxable, but if not, and it was paid at the discretion of the firm then it was not. This may have changed since 2018 though, but worth getting advice.
Just had a conversation with my Trusts Pension team, and I have been left even more confused.
There long answer was speak to a Tax Accountant.
The slightly shorter answer was:
I can buy additional pension through the NHS, but I cant just do it as a one off ie put £2000 in to my existing pension pot. They said I would have to keep contributing to the point I retire.
All very confused now, and I am not sure what is right or wrong !?!
I was in a similar situation 5 years ago, in September 2019. Though it wasn't classed as redundancy, I got a £50k pay off to leave, and took my pension at the same time.
IIRC, as you say, the first £30k was tax free. I was then taxed at my usual rate @20% (£43k salary). I even got a £3.5k tax refund a couple of months later - though that might have been my employers incompetence calculating my final payslip.
I was never taxed at the higher rate of 40%, but that might have been because I didn't draw any pension for around 9 months, thus keeping my annual income under the threshold
I can buy additional pension through the NHS, but I cant just do it as a one off ie put £2000 in to my existing pension pot. They said I would have to keep contributing to the point I retire.
Not got experience of the NHS pension, but most public sector pensions are similar. You may not be able to add additional contributions to the main pension, but only create an additional sort of pension/AVC on less good terms. I beleve it can only be taken at the same time as the main pension as well. That is why an advisor may help, as other options outside the NHS are there, and you may be able to take any additional pension at an earlier date.
The package will be nigh on 2 years pay and will therefore be in the higher & additional tax bracket. With the potential to take early “retirement” would it be best to make an AVC to get the tax relief of the 40/45% which I can claim back on my tax return
Forgive me if my arithmetic is wrong, but if that puts you into additional rate tax, that suggests the lump will be way over the £60k annual pensions limit. IIRC you can use previous years' allowance, but I'd double check
Also, gov.uk seems to say you can't pay in more than 100% of your annual earnings. Do we think this may mean your normal salary, or your salary plus redundancy,?