Best month to retire for tax purposes

W

wigwam

Registered User
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I wonder is there a month in the tax year that's the best to retire in for tax purposes? I'm in DB pension scheme. Thanks
 
January - the sooner the better, I say!

But seriously, I don't know if there is anything to be gained - you would have to look at your expected earnings, taxes etc and work out the net effect
 
wigwam said:
I wonder is there a month in the tax year that's the best to retire in for tax purposes?
Click to expand...

Hi wigwam

It used to really annoy me that companies made their employees redundant on 31 December. This was during the crash when there was a good chance that they might not get employment again for some time.

Making someone redundant in March gave the employee another year of tax credits and 20% tax band to use.

So that would be the consideration here. If your pension is not going to put you into the top tax band, then retiring earlier in the year is more tax effective.

Look at it another way...
In the first months of the year, your tax rate is zero.
Then you have a few months at 20%.
At some stage, all your earnings are taxed at 40%

Brendan
 
Thanks Brendan
 
I can't see any obvious advantage or disadvantages.

Your tax liability for the year, is your tax liability for the year.
If you retire 6 months into the year and your pension is lower than your salary, then you may have paid more tax in the salaried period than you need to.
But this can be easily rectified by requesting a balancing statement at the end of the year.
 
Not tax related and a bit niche, but if one was borderline for a SUSI grant then a December lump sum might put one over the threshold (I think lump sum divided by pension years is counted as reckonable income for SUSI). In such case better to retire in Jan than Dec.
 
That's always been a bit unfair, in my view.
The tax free lump sum, taken at retirement, is the accumulation of savings/wages during a lifetime of work. It is also a one off payment, designed to be managed over the rest of the individual's life.
When you say it is divided by pension years, do you mean the total number of years that the retiree has been part of a pension scheme
Eg; Lumps sum is 40k and retiree has been a member of the scheme for 20 years.
Reckonable income is 40/20?
 
That's my understanding, see below, from https://susi.ie/wp-content/uploads/2020/04/New-Application-Form-Guide-2020-2-Final-Review.pdf

F10. Did you receive a lump sum payment during 2019 from retirement or redundancy?

If you, your parent(s, legal guardian, spouse, civil partner or cohabitant as applicable, received a lump
sum payment in 2019 arising from retirement or cessation of employment (including redundancy, please
provide details here.

Retirement: Where you, your parent(s, legal guardian, spouse, civil partner or cohabitant, as applicable
retired in 2019 from employment or self-employment and received a lump sum, we take a proportion of
the lump sum into account for calculating reckonable income for student grant purposes. We calculate
the proportion we take into account by dividing the retirement lump sum by the number of years of
pensionable service. If you are self-employed, the 'pensionable service' you should enter is the number
of years for which you made contributions to a retirement product.

Redundancy: If you, your parent(s, legal guardian, spouse, civil partner or cohabitant as applicable,
ceased employment or were made Redundant in 2019 and received a lump sum, we take a proportion
of the lump sum into account for calculating reckonable income for student grant purposes. We
calculate the proportion we take into account by dividing the lump sum by the number of years of
service with the employer.
 
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