VR and future earnings

[casp21]

I went to see a financial adviser who said that redundancy payments are not classed as earnings for that particular financial year, I thought they were. Taking VR in two months and also wanted to put a lump sum into a SIPP but he also said that I couldn't as I had to match the earnings for that tax year, ie if I wanted to put in £25000 (after the first 30k), I would have had to earn 25k in 2015/16. I am so confused. So VR isn't classed as earnings even though its taxed and I can't put money into a SIPP if I don't work again until the 2016/17 ?

[RobertT]

Technically you can put as much as you want into a SIPP/ personal pension but you will only get tax relief on the amount equal to your earnings for that tax year, upto a maximum of £40,000. People who don’t pay any tax can still put in a max of £2,880 net or £3,600 inc tax relief per year regardless of how much they earn. http://www.pensionsadvisoryservice.org. ... -a-pension" onclick="window.open(this.href);return false;

The solution to your situation is probably to put the money over £30k into some kind of savings account like ISA’s or even premium bonds and then drip feed it into your pension over time. Although you will be paying tax initially, you will effectively get that back in the form of tax relief when it goes into a pension.

[casp21]

Thanks Robert. Is the VR payment part of my earnings? If I don't work the rest of the year and only got pay for April and May, does that mean I can only put into a SIPP the equivalent of that earned amount or an amount if I pay no tax at all? Sorry if I seem dumb,

[RobertT]

I thought the amount over £30k was deemed to be earned income to be honest as it’s potentially taxable. An IFA should know better than me, although I’ve done a bit of searching online and can’t really find a definitive answer.

If you won’t be working beyond May, you may need further info on how to claim back the tax on your VR payments. Here is a good link: http://www.litrg.org.uk/tax-guides/empl ... y-payments" onclick="window.open(this.href);return false;

[N1-22postman]

Have a look at this link : http://www.hmrc.gov.uk/manuals/rpsmmanu ... 203020.htm" onclick="window.open(this.href);return false; and http://www.hmrc.gov.uk/manuals/rpsmmanu ... 200060.htm" onclick="window.open(this.href);return false; . In the second link it clearly states that "any part of a redundancy payment that exceeds the £30,000 tax exempt threshold" are "relevant UK earnings" for tax relief on pension contributions. In my case I put £13,000 into a Fidelity SIPP in the 2014 - 2015 tax year and they have claimed the 20% tax relief automatically from HMRC making my SIPP now worth £16,250 (The £3250 added tax relief is 20% of £16,250). My redundancy payment was a little bit more than £46,250. Remember to contribute not more than 80% of any excess over the £30,000 not the 100% of any excess.

[RobertT]

Nice one N1-22! I think that financial adviser needs to do his homework.

[casp21]

Thanks guys, I am printing this stuff off and bringing it to the financial adviser for clarification, as what he is telling me differs from the tax office, who I assume are right.