Tax savings on redundancy payment ?

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High Flyer
Sun, 08/03/2009 - 19:11

Hello all,

I am due to accept voluntary  redundancy late next year. The lump sum is around £140,000.

I can either put £110,000 in my pension fund to boost the pension monthly payments and keep £30,000 tax free  and avoid tax at 40% on £110,000 (44k), or take a tax hit of 44k and keep £96,000 tax free.

Is there any way I can reduce/avoid the tax hit?

 

thanks

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djwhite01:

You don't mention your age so I don't know if you are able to do this :- If you are of an early retirement age (I think it is currently 50 until April when it rises to 55 - check this out!), you can put the excess over the tax free £30k into your pension fund tax free as you mention above. The neat trick now is that if you are taking early retirement, you can take a tax free lump sum of up to 25% of your total pension. I have just used this legal trick to effectively take all of my redundancy package of almost £100k tax free.

Thu, 19/03/2009 - 17:31
djwhite01:

You don't mention your age so I don't know if you are able to do this :- If you are of an early retirement age (I think it is currently 50 until April when it rises to 55 - check this out!), you can put the excess over the tax free £30k into your pension fund tax free as you mention above. The neat trick now is that if you are taking early retirement, you can take a tax free lump sum of up to 25% of your total pension. I have just used this legal trick to effectively take all of my redundancy package of almost £100k tax free.

Thu, 19/03/2009 - 17:33
High Flyer:

Thanks,

I am 55 next month. So if I keep 30k tax free, put 100k in the pension pot and take 25% of the pot (240k) I will have 90k tax free instead of 90k in my hand having paid 40% in tax

 

Many thanks

Thu, 19/03/2009 - 21:05
Guest (not verified):

I have heard of something called permissive redundacy this is where you can claim all of your redundancy money without having to pay any tax?

Thu, 30/04/2009 - 17:39