Voluntary Severance - Minimsing Tax

[thekingisdead]

Colleague is being made redundant, but he has a VS amount of close to 6 figures.

Understandably, and to help bridge the gap to retirement, he is seeking ways to minimise the tax due on this amount.
I've advised paying to see a tax accountant, due to the sum's involved, but would like to understand the options available anyway (mainly cos im a geek and find these things interesting)

As I understand it:

-£30k can be tax free from the VS.
-The remainder can be paid into a pension (up to £40k annual limit)
- After that any will have to use up pension allowance from the previous 3 years?

I assume a tax return will have to be submitted to reclaim tax relief when using pension?

Thanks,

[williaa68]

Sounds about right to me.

[thekingisdead]

Further question:

If they started drawing on a DB pension, would they be allowed to contribute to another scheme simultaneously?
(its likely they will start straight away in another job).

[outnumbered]

Probably not possible given it's September, but last time I was in this position, I managed to get a big chunk of the money paid in the following tax year. At the time I was in the 50% tax band, so this definitely helped, as the next tax year I was "only" in the 40% band.

[ellroy]

thekingisdead said:

Further question:

If they started drawing on a DB pension, would they be allowed to contribute to another scheme simultaneously?
(its likely they will start straight away in another job).

Should be OK, although best to check the exact scheme as some pensions, not DB generally, can trigger MPPA rules when 'income' is drawn, reducing the allowance that can be saved to £4k per annum. Better to check before making the decision!

[bogie]

Similar situation myself earlier this year and you are spot on with your assumptions

£30k tax free
max out pension
use any previous years pension allowance you can via self assessment return

thats about it, you then pay tax on whats left at your tax rate