Being made redundant is when you lose your job because your employer is reducing the number of staff they have. This can be for various reasons such as cutting costs or simply that the role is no longer needed.
Being made redundant is a stressful time for anyone but understanding your rights and having a plan for what to do with the redundancy payout will help give you some peace of mind.
There are lots of options available to you when taking your redundancy pay. We explore some of these below:
Should I use my redundancy pay to clear my debts?
Before you consider saving or investing your redundancy you should first look at what debts you have and consider paying these off. Particularly if you have credit cards or loans with a high interest rate, paying them off will reduce the amount of interest you pay.
Can I use my redundancy pay to reduce my mortgage?
Most lenders will allow you to make a one-off lump sum contribution towards your mortgage. This will reduce your monthly payments and the amount of interest you pay overall. Before you do this, it is important that you check with your lender if they charge you for overpayments or have a cap on the amount you can overpay each year.
Can I pay my redundancy pay directly into my pension?
If you do not need access to the money until retirement then a good option could be to ask your employer to pay some or all of the redundancy payout directly into your pension as this is more tax-efficient rather than sending it to you. Pension contributions benefit from tax relief from the government at your marginal rate of income tax.
Please note in the 2023/24 tax year the maximum amount you can put into a pension and still receive tax relief is £60,000. You can utilise the ‘carry forward allowance’ and carry forward any unused amounts from the previous tax years. If you wish to do this, then it is worthwhile speaking to a financial adviser so they can calculate exactly how much you can contribute and receive tax relief.
Book a no-obligation meeting or call us on 0117 973 0500.
Should I invest a redundancy lump sum into an ISA?
A stocks and shares ISA is a good way to invest up to £20,000 each tax year, free from income and capital gains tax.
If your redundancy pay is significantly more than £20,000 and you are considering investing it, a financial adviser at Four Wealth Management can help you to create a financial plan to invest your redundancy pay tax-efficiently.
Book a no-obligation meeting or call us on 0117 973 0500.
Start a financial plan for your redundancy payout
There are numerous options available to you and it is important that you understand the tax consequences of receiving a redundancy payout so you can plan accordingly.
To help you understand your options for redundancy pay, we offer a no-obligation meeting with a financial adviser. Meetings are usually around one hour and can be at your home address, at one of our offices or on zoom.
Book online now or call us on 0117 973 0500.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and the value may fall as well as rise. You may get back less than the amount invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.
