Take redundancy payment in 2011 or 2012?

B

brokenwing

Guest
My job is going to be made redundant and I have an option to leave at end of 2011 or early 2012. My redundancy lump sum after tax will be approx 60,000K. Is there any advantage from a taxation point of view to being paid that lump in the new tax year, 2012 rather than 2011?
 
No, I don't think it will be easy to get another job at all where I live and as I have dependants I can't just up and move!
 
Then you should take it in 2012 as you will be able to make better use of your 20% tax band, which you wouldn't if you took it in 2011, as I assume your 20% band would be fully used up in 2011 with your salary.

Basically if you are married and your spouse works (earning at least €40K) AND you can get jobseekers benefit after redundancy, you will save PAYE of approx €2,900 if you take the redundancy in 2012.

This is based on the fact that you can earn €32,800 at the 20% rate

If married you can transfer €9,000 to your spouse

JB will be about €10K per annum

This leaves approx €13,800 of unused 20% band

So €13,800 of your taxable lump sum will be at 20% while the remainder will be at 41%

However if you take the lump sum in 2011, it will all be at the 41% rate (incl the €13,800 above)

The tax saving on the €13,800 will be

€13,800 x 21% (41% - 20%) = €2,898

Obviously the above assumes no change in tax free lump sums, tax bands, USC, amounts transferrable to spouse etc in the upcoming budget but I can only advise based on current situation.
 
Should also add that if you take it in 2011, it won't be at the 41% rate but will in fact be taxed at your average tax rate from the last 3 years (called top-slicing relief)

Therefore the saving may not be as much as €2,900 but the principal of the post above remains the same.
 
Thank you very much for that information! I suspected that 2012 might be better for me but to have it laid out so precisely is an enormous help in making the decision and planning for my immediate future.
Thanks again!
 
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