Voluntary redundancy & income tax?

[LeadFarmer]

Can anyone please confirm the position regarding income tax in a voluntary redundancy scenario such as the following.

If an employee receives a voluntary redundancy payment of £45k, is the first £30k of this payment tax free, with tax to pay on just the remaining £15k?
Or, do they pay income tax on the whole amount, which could effectively put them into the 40% tax bracket depending on future earnings in the same year?

Edited by LeadFarmer on Wednesday 26th August 21:33

[StevieBee]

The first £30k of redundancy is tax free. In the scenario you describe, £15k of the redundancy payment will be taxable. I believe this is treated as 'salary' and thus taxed and deducted accordingly.

[LeadFarmer]

Thanks for confirming that.

So moving straight into new employment could, depending on the new salary, take them over the income tax threshold and into the 40% bracket, seeing as £15k of the lump sum becomes part of that years earnings?

Edited by LeadFarmer on Thursday 27th August 08:02

[Countdown]

LeadFarmer said:

Thanks for confirming that.

So moving straight into new employment could, depending on the new salary, take them over the income tax threshold and into the 40% bracket, seeing as £15k of the lump sum becomes part of that years earnings?

Edited by LeadFarmer on Thursday 27th August 08:02

Yes.

[55palfers]

If you have another job, maybe ask employer to put £15k into your pension?

[98elise]

55palfers said:

If you have another job, maybe ask employer to put £15k into your pension?

If the OP has a SIPP they could do that themselves.

[parabolica]

anonymous said:

[redacted]

This. You need to know the breakdown of the £45k payment. If it includes anything that would be classed as Post Employment Notice Pay (PENP) such as notice pay, accrued vacation payment, car allowance etc then that is taxable at the prevailing rate. Only actual statutory redundancy and company discretionary redundancy pay is tax free (up to the £30k limit).

[edc]

The issue is that many employees think their last leaving payment is 'redundancy pay'. But the last payment is potentially made up of various elements most of which are tax and NI'able as normal.