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bigduckontax, Accountant
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I am about to be made redundant. I am going to take

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Hello. I am about to be made redundant. I am going to take the first £30K of my redundancy package as cash, but have asked the remainder to be paid directly into my pension - which I understand will protect it from being liable for tax.
In addition to my redundancy package itself, I will receive some PILON and some pay for unused holiday. So, those are essentially salary payments. My question is - can those funds also be paid straight into my pension without incurring tax. My IFA, my solicitor and the payroll manager at my company all have different answers for this!
Is there actually a clear answer - or do I have to ring HMRC?
Many thanks -
Hello Jo, I am Keith, one of the experts on Just Answer and pleased to be able to help you with your question. You are correct in your surmise that the first 30K of a redundancy payment is tax free. You can certainly put all the rest of the moneys direct into you pension fund thus avoiding tax, but remember that the aggregate of employer's end employee's contributions may not exceed 40K or 100% of wages in the current tax year. You may gave some slack from earlier years you can mop up which may exist, but remember that there was a 50K limit in 14/15. If you use a SIPP you can go back three years to utilize unused contribution levels. There is an overall limit to your pension pot [source: The Money Advice Service], 'A lifetime allowance puts a top limit on the value of pension benefits that you can receive without having to pay a tax charge. The lifetime allowance is £1.25 million for the tax year 2015-16 (falling to £1 million in April 2016). Any amount above this is subject to a tax charge of 25% if paid as pension or 55% if paid as a lump sum.' Providing the contributions are within the parameters I have set out your proposals are feasible. I do hope that you have found my reply of assistance.
Customer: replied 2 years ago.
Hello Keith. Thanks very much for your answer. I am getting about £50K redundancy money, so will take the tax-free £30K, and have the remaining £20K paid into my pension, to avoid tax. Everybody is in agreement about that. What they are not in agreement about is whether I can also have my PILON and holiday pay (about £13K combined) paid directly into my pension without incurring tax. My IFA says yes. My solicitor says no - PILON and holiday pay are salary (rather than redundancy) payments, and will be taxed. The payroll manager says they will be taxed, but I can then claim the tax back from HMRC. If I could therefore have your advice about the PILON and holiday pay elements specifically, that would be super, as I indeed don't fancy an exercise in administrative futility! Best - Jo
You can put the lot into a pension Jo provided your and your employer's and employee's contributions do not breach the limits of which I warned you. In fact it doesn't matter if they pay you direct, you can still put in into your pension pot. If you make the payment direct you pay it net of tax and the pension provider claims the tax back to make up the contribution. Say you are paying in a hundred quid you would pay GBP 83.33 and the company would claim the balance from HMRC.
Everything will come out in the wash as it were when you self assess at the end of the year. Finally don't forget to sign on. Even if you are not entitled to Job Seekers' Allowance your card is still stamped, to use an old expression, keeping your NI contributions up so long as you are signed on.
Please be so kind as to rate me before you leave the Just Answer site.
Customer: replied 2 years ago.
Hi again. So (just so I can get this totally clear in my head), you are saying that if my employer makes a contribution to my pension from my severance package - whether from the redundancy payment itself, or PILON, or holiday pay), this money is not taxable - so long as within the limit?
Any pension contribution by your employer or by the employee added together will attract tax relief provided it falls within the lower of 100% of emoluments or the 40K limit. You may be able to mop up unused contributions left from earlier periods also. Don't breach the Lifetime Limit either [albeit unlikely].
Customer: replied 2 years ago.
Even if that contribution includes money from PILON and holiday pay, Keith? That is the fundamental fact which I am trying to ascertain. If my employer puts £20K from my redundancy pay and £13K of PILON and holiday pay into my pension, will the entire £32K attract tax relief so long as I'm under the limit?
Yes it does.
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