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www.InvestmentGuide.co.uk Redundancy
Redundancy payments don't usually amount to a lot £2,000 is the average. But if you have worked with the same company for many years, you might get much more. If you have been in a company's pension scheme and are over age 50, you may get a pension plus a lump sum from the pension scheme at the same time as your redundancy money.
The first £30,000 of lump sum redundancy payments or ex-gratia pay in lieu of notice are normally tax free if they are paid after you have ended your employment; the balance is taxed in full. Sometimes PAYE tax is deducted from the tax exempt part but this is reclaimable. Lump sums paid as a commutation of pension rights are also tax free. A ruling by the Court of Appeal on 20 July 1999 may mean in future that pay in lieu of notice is always taxable. If this ruling is upheld by the House of Lords, it will also mean that in future pay in lieu of notice will now always be a right as opposed to ex-gratiaand cannot be reduced because someone finds a new job within the notice period for which pay in lieu is given. Also pay in lieu of notice would always be due in addition to any redundancy payment.
When a company goes into liquidation, liquidators deduct what they call 'tax' from pay in lieu of notice money. This deduction is not tax and is not paid to the Inland Revenue but the House of Lords has ruled that your statutory pay in lieu of notice amounts to take home pay, and as personal tax allowances are usually used up by unemployment benefit, liquidators are correct to make a deduction. This situtation may also change as a result of the Court of Appeal ruling.
Job seekers allowance is taxable. So while you receive this benefit, part or all of your tax allowances are set against your benefit.
If you remain unemployed for more than six months after which job seekers allowance ceases, you are likely to be a non-taxpayer and will probably need to spend some of your capital in order to maintain your standard of living. You will be entitled to other State benefits after six months if your savings are low and you have no or little other income. Click for more details of State benefits.
If you have retired early (i.e. before 65 for men, before 60 for women) and receive a pension from a former job, your personal tax allowances will be set against part or all of your job pension. Only if your job pension is less than your personal tax allowances and outgoings will you be a non-taxpayer as far as part or all of your investments are concerned. See also advice in Boosting Your Retirement Income.
Unless you regard your unemployment as early retirement, don't tie up your money: you may need it.
Taxpayers and non-taxpayers should invest in:
Non-taxpayers should also consider the following which do not deduct tax from the interest:
Widows under retirement age
Widow's pensions and widowed mother's allowance are taxable. But if they are less than her personal tax allowance and if she has little other income, she may not be a taxpayer. The £1,000 payment made to widows under 60 without children is tax free. If she has children she may get child addition paid with her widow's benefit; this child addition is also tax free. For more details on State benefits, see Department for Work and Pensions.
If a widow earns, she continues to receive her widow's benefit and will almost certainly be a taxpayer even if the job is only part time. Her personal tax allowances are first set against her widow's benefit and then against her earnings.
The proceeds of life insurance policies on death don't count as income even the family income benefit policies which pay out monthly, quarterly or half-yearly instalments. But a pension paid to a widow by her former husband's firm and income from a personal pension or retirement annuity which continues count as income.
In the year of a husband's death there may be less tax to pay. Any investment income received by the husband in the part of the tax year up to the date of death counts as his income (together with his earnings or pension) against which the married man's tax allowances can be set. Investment income received during the remainder of the tax year (i.e. until the following 5 April) counts as the widow's; she can set her personal tax allowance plus her widow's bereavement tax allowance against this. There is a free HM Revenue & Customs leaflet at HM Revenue & Customs Leaflets and Booklets Home page.
Separated or divorced
Maintenance payments under a court order or an enforceable separation deed made before 15 March 1988 count as income in the hands of the recipient and may be taxable. Since 6 April 2000, these have not been taxable (unless either payer or recipient was over age 65 at 5 April 2000). From the same date the payer was not allowed to set the payments against his or her tax bill (unless either payer or recipient was over age 65 at 5 April 2000). Such payments paid to a child counted as the child's income and are not liable for tax up to the value of the child's personal allowance assuming the child has no other income.
Voluntary payments and payments which started on or after 15 March 1988 don't count as income so there is no tax for the recipient to reclaim or pay but the payer cannot set them against his income. For more information see HM Revenue & Customs Leaflets and Booklets Home page.
 Last updated 8 April 2008 |
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