TRax on redundancy payemnt

[Wexfordman]

Hi,

I'm facing potential, redundancy in the near future and have been looking at the tax of potential redundancy payments. The package my employer is offering is 6+2 (6 weeks plus 2 statutary), and I am working for them about 15 yrs.

My understanding is as follows:-

1) Statutary sum is tax free, and calculated as (600 *2) * 15 + 600
2) Ex gratia payment (6 weeks per year), but is capped at 78 weeks.

Ex gratia payment would be best calculated on the scsb calculation ?

so say avg salary was 50k, then tax free element would be calculated as

(Avg salary/15) * number of years service
(50,000/15)*15 = 50,000

Ex gratia payment of 75k would make 50k tax free, with 25k taxable at 41%

Statutary payment = 18,600, no tax payable

Ex gratia payment of 75k
payment tax f ree = 50k
25k taxable @41% = 14750 after tax.

total lump sum = 18,600 + 50,000 + 14750 = 83,350 after tax payment

Would this be the correct approach ?

Any advice appreciated, need to get some fwd planning in train!

 

[Sunny]

You are on the right track but you will also pay USC on the taxable part of your lump sum. You will also be entitled to top slicing relief in the following tax year.

 

[Wexfordman]

Thanks sunny, I forgot about the USC, will add that. The thing that was confusing me was whether or not I should exclude the statutary piece completely when calculating my liability using the scsb method. Glad to hear that I should!

With 15 years, scsb would seem to be the best method ?

 

[Kemo_Sabe]

With 15 years, scsb would seem to be the best method ?

definitely, I just went through redundancy myself and ended up paying approx 11k tax on a 107k payment using the SCSB method. 11 years service. Will also get maybe 3k back in top-slicing relief.

I did waive my right to a pension lump-sum however which gave me an extra 4k now. On a PV basis it's certainly the right thing to do.