With effect from 6th April 2018, pay received in lieu of notice (PILON) is now no longer tax free below the amount of £30,000. Other redundancy payment lump sums will still receive the £30,000 tax-free exemption but PILON will not.
National Insurance contributions (NICs) will not be due on your redundancy payment, even where this exceeds £30,000, but will be due in respect of PILON.
If you do have to pay tax on your redundancy lump sum, it will count against your tax bill in the tax year that you receive the money.
How to make the most of your redundancy payment
Receiving a redundancy lump sum payment may help soften the blow of redundancy but deciding what to do with your lump sum can be a bit of a minefield. However, with careful planning and investment, your tax liability can be minimised.
- Boost your retirement provision by making additional pension contributions, either personally or by requesting that your employer contributes the taxable element of your severance pay to your pension. You’re able to receive tax relief on pension contributions within certain parameters.
- Invest in other ways. There are several different investment options available which allow you to utilise your allowances and exemptions, including Investment ISAs, Unit Trusts and OEICs, VCTs and EIS.
- Reduce your debts. Interest payable on debts, credit cards, store cards etc is usually much more than the interest that is earned on savings.
- Deposit in an interest baring savings account whilst you consider your options.
Get in touch to find out more about your options
By discussing your situation with one of Springfield Financial Services’ Chartered Financial Planners, we can provide advice and help you to decide on the best course of action.
If you’re being made redundant and will be receiving a severance lump sum, call us on 01772 729742 or complete our online enquiry form.