Making the most of your redundancy pay

Receiving a redundancy lump sum payment (severance pay) may help soften the blow of redundancy, but deciding what to do with your lump sum can be a bit of a minefield.

The first £30,000 of your redundancy pay lump sum will normally be payable tax-free. Any excess is taxable at your marginal rate of income tax. 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 your employer contribute the taxable element of your severance pay to your pension. You can receive tax relief on pension contributions within certain parameters. For example, a £10,000 personal contribution receives basic rate tax relief of £2,500. This means that £12,500 is credited to your pension fund for an initial outlay of £10,000. A higher rate taxpayer would receive a further £2,500 via their self-assessment.
Invest in other ways. There are a number of different investment options that allow you to utilise your allowances and exemptions, including Investment ISAs, Unit Trusts and OEICs, VCTs and EIS.
Use your redundancy pay to 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-bearing savings account whilst you consider your options. For basic rate taxpayers, up to £1,000 of interest from savings is paid gross (2019/20). This is reduced to £500 for higher rate taxpayers.

If you’re being made redundant and will be receiving a severance lump sum, call us on 01772 729742. Arrange an initial no-obligation consultation at our offices or another mutually convenient location. Alternatively, simply fill out our online enquiry form and we will give you a call to discuss your requirements.