Being paid to leave work PILON
Discussion
Hello all
I would like to make sure I understand my options
I have just been offered payed leavers scheme PILON and wanted to make the most of any tax benefits
I initially though that £30K would be tax free, but have since realised that is not the case.
The payment is circa £70K
If I put £58K into my pension (subject to allowances) I would be taxed on £12k, but as that is within my annual allowance would be not taxable ? last date of work is 30 April, so only 3 weeks of 2023/2024 tax year
I could then draw down from my pension as needed either using the 25% portion or pay tax on it?
If I then started paying into another pension fund with a new job (plan is to retire, so not likely) would that cause me issues with the fact I have taken money out of pension 1?
Anything else I need to consider?
Thanks
I would like to make sure I understand my options
I have just been offered payed leavers scheme PILON and wanted to make the most of any tax benefits
I initially though that £30K would be tax free, but have since realised that is not the case.
The payment is circa £70K
If I put £58K into my pension (subject to allowances) I would be taxed on £12k, but as that is within my annual allowance would be not taxable ? last date of work is 30 April, so only 3 weeks of 2023/2024 tax year
I could then draw down from my pension as needed either using the 25% portion or pay tax on it?
If I then started paying into another pension fund with a new job (plan is to retire, so not likely) would that cause me issues with the fact I have taken money out of pension 1?
Anything else I need to consider?
Thanks
Have they not used the R word? As in Redundancy?
If your position is redundant, they can pay you some 'compensation' for loss of office and up to £30k of that should be tax free.
Sadly, any PILON will always be taxable as it is, by definition, a contractual obligation to pay you notice - regardless of whether or not you are required to work through it.
If you get paid in April, you will only benefit from 1/12th of the £12,570 Personal Allowance at that time (automatically, via PAYE), so you could face a rather salty tax bill in April unless, as you have suggested, you divert a large part of your final payment into your pension.
If you do end up paying too much tax in April, there should be a way for you to get some of that back: by speaking to HMRC and/or filing a Self Assessment claim although it will take a while for it to work itself out.
If your position is redundant, they can pay you some 'compensation' for loss of office and up to £30k of that should be tax free.
Sadly, any PILON will always be taxable as it is, by definition, a contractual obligation to pay you notice - regardless of whether or not you are required to work through it.
If you get paid in April, you will only benefit from 1/12th of the £12,570 Personal Allowance at that time (automatically, via PAYE), so you could face a rather salty tax bill in April unless, as you have suggested, you divert a large part of your final payment into your pension.
If you do end up paying too much tax in April, there should be a way for you to get some of that back: by speaking to HMRC and/or filing a Self Assessment claim although it will take a while for it to work itself out.
Edited by Mogul on Tuesday 28th February 15:05
As others have said - PILON is payment in lieu of notice - so should just be your contractual notice period but paid as a single payment.
Redundancy different - and 30k of that should be tax free.
On the pension side - as long as you only take the 25% tax free (or a defined benefit scheme) then nothing to worry about. If you take any of the remaining 75%, then you significantly reduce the ability to make future pension contributions (down from 40k to 4k).
Redundancy different - and 30k of that should be tax free.
On the pension side - as long as you only take the 25% tax free (or a defined benefit scheme) then nothing to worry about. If you take any of the remaining 75%, then you significantly reduce the ability to make future pension contributions (down from 40k to 4k).
Carbon Sasquatch said:
On the pension side - as long as you only take the 25% tax free (or a defined benefit scheme) then nothing to worry about. If you take any of the remaining 75%, then you significantly reduce the ability to make future pension contributions (down from 40k to 4k).
Is that any future pension I may or may not have? So if I do some work for another company after I have taken any of the taxable 75% I can only put up to £4K a year in, including company contributions?It's an urban myth the £30k is automatically tax free, it depends on multiple factors. The Employer on their monthly submissions will no doubt inadvertently flag it up and at some stage it may be queried.
It's pretty simple, get the paper work right before any payment and ensure all paper work lines up.
It's many years ago since I made this kind of arrangement with a member of staff but subject to what your contract says, and that detail is very important, the correct paper work trail and procedure is vital.
I was incentivised as if the payment was queried and failed, additional NI etc would have been due but for some super large company and their payroll dept, that may not be an issue so get proper advice and again if it hasn't changed specific contract terms are relevant
It's pretty simple, get the paper work right before any payment and ensure all paper work lines up.
It's many years ago since I made this kind of arrangement with a member of staff but subject to what your contract says, and that detail is very important, the correct paper work trail and procedure is vital.
I was incentivised as if the payment was queried and failed, additional NI etc would have been due but for some super large company and their payroll dept, that may not be an issue so get proper advice and again if it hasn't changed specific contract terms are relevant
LooneyTunes said:
Make sure you understand what the payment is for.
I've seen companies "forget" about things such as healthcare, car allowances, pension contributions and try to get away with calculating based on just the salary element.
So the payments should be based on base salary plus all benefits?I've seen companies "forget" about things such as healthcare, car allowances, pension contributions and try to get away with calculating based on just the salary element.
matrignano said:
So the payments should be based on base salary plus all benefits?
That would be my position if being asked to take PILON. They are things you would receive if you worked your notice. Might think differently if was keen to get out asap and/or the extra value was minimal.
matrignano said:
LooneyTunes said:
Make sure you understand what the payment is for.
I've seen companies "forget" about things such as healthcare, car allowances, pension contributions and try to get away with calculating based on just the salary element.
So the payments should be based on base salary plus all benefits?I've seen companies "forget" about things such as healthcare, car allowances, pension contributions and try to get away with calculating based on just the salary element.
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