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What is the tax treatment for redundancy payment above £30,000

I have just received a large redundancy pay. However I understand redundancy pay of £30,000 is tax free or is it not or what or what can I do to the first £30,000 of redundancy pay so that it is deductible. In addition what is the tax treatment for redundancy payment above £30,000?

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    As a rule, redundancy payments of up to £30,000 are not taxable. Amounts above £30,000 will usually be taxable at your marginal tax rate (20% if you’re a basic-rate taxpayer; 40% for higher-rate taxpayers; 50% for additional-rate taxpayers).

    Here are the things you may consider to reduce your redundancy tax bill:

    Make sure the £redundancy pay meet HMRC otherwise you may even lose out on the £30k tax free
    The first £30,000 of redundancy pay is not taxable providing certain criteria laid down by the taxman are met (i.e. that it is not part of a retirement package). Read HMRC’s redundancy factsheet; speak to your employer and check that they have ensured that your redundancy fits the tax man’s criteria to ensure that you don’t pay tax on the first £30,000.

    2. Pensions
    As you state in your question you already know about pensions but I just decided to list it here just as a reminder. By asking your employer to pay the excess above £30,000 into your pension fund you get tax relief on the payment into your pension fund (subject to annual and lifetime limits), as well as reducing the taxable element of your redundancy payment. But the major downside of this is that your money is locked up in a pension until you are age 55.

    3. Delay your redundancy
    Is there any way you can delay the termination date of your employment until after 6th April so that the redundancy falls in the next tax year. If you were able to then you will not be a 40% income tax payer as you won’t have had any earnings. You would then have time (namely the rest of the tax year) to manage your future income in order to pay as little tax on your redundancy payment as possible.

    4. Redundancy costs
    If you incurred legal costs relating to redundancy. Usually the employer pays the employee’s legal costs. If the £40k includes your costs, then this does not count towards the £30,000 exemption as long as it is solely in connection with termination of employment, is paid directly to the employee’s solicitor. The same applies to cost of outplacement counselling or similar training are not taxable and do not count towards the £30,000 exemption.

    5. Reduce your income tax bill elsewhere
    Unfortunately there is not an awful lot that can be done once the redundancy has been agreed. Another way to look at the problem is to not concentrate on the redundancy payment itself but look at reducing your income tax bill elsewhere. That way less of your redundancy payment will fall into the 20% tax bracket. You could do this by deferring any unneeded income until the next tax year or by moving any income producing assets such as savings into a spouse’s name. Other ways include investing in tax incentivised investments and other schemes were entrepreneur scheme reliefs, etc

    If you are at the end of the tax year and as an employee paid under PAYE your options for reducing your income tax bill may be limited unless you plan well ahead…..


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