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bigduckontax
bigduckontax, Accountant
Category: Tax
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Hi all, just a quick question. I am presently employed as an

Customer Question

Hi all, just a quick question. I am presently employed as an air traffic controller aged 57. I have just lost my medical certificate to practice. My company operates a loss of licence scheme which gives 2 year salary compensation on job termination, and will offer this to me. If this is paid as a lump sum during this tax year, would I lose 40% of the lump sum as I am in the higher tax bracket, or does HMRC treat the lump sum as a tax free package for job compensation. Would it make sense to try and negotiate the lump sum payment to be paid monthly over a 2 year period to save tax?
Thanks so much
Gordon
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello Gordon, I'm Keith and happy to help you with your question. So sorry to hear of your predicament.
HMRC advise that the first 30K of any such severance payment made as a lump sum is tax free and not included for NI purposes. Depending upon the level of compensation involved it might indeed be more advantageous to you to have it paid in two tranches.
I do hope that helps. Me, I am just off to the dentist, but will be back before lunch time if you have any follow up questions.
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3607
Experience: FCCA FCMA CGMA ACIS
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Customer: replied 2 years ago.

Thanks Keith,

Appreciate that. My compensation package is probably about £140000. Would company pension contributions normally be included in a salary compensation package.

One last question, Keith.

Would it make sense to take the first £30000 of the compensation as a lump sum tax free if I had to take the lump sum in one go, and then put as much of the remaining sum into my pension fund. My pension fund is £360000 at present. Then start taking an income from the pension fund

Thanks again,

Gordon

Expert:  bigduckontax replied 2 years ago.
I cannot advise you as to the computation of your lump sum, Gordon, sorry. It depends upon the rules of your particular pension fund. You will have to approach your human resources staff for details.
The law has just changed on the level of contribution which is allowable for tax relief. In the current tax year it is 40K including your employer's element. Last Year it was 50K and before that unlimited up to 100% of salary. You might be able to mop up unpaid contributions for earlier years.
With 30K deducted your compensation would still leave you with a 110K lump sum. It would be taxable at your marginal rate of tax which will push you over the 100K income limit after which you begin to loose your personal allowance by a quid for every two over the 100K. Also, if your annual remuneration exceeds 150K your marginal tax rate rises to 45%, ouch. It is pretty clear than an element of time juggling over two or more tax years might prove advantageous.
It might be advisable to consult a local, trusted professional to guide you through this process. There is a lot at stake if you go the wrong way.
Expert:  bigduckontax replied 2 years ago.

Thank you for your excellent support.

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