Author: Glenn

There is a tax-free limit of £30,000 for redundancy pay regardless of whether it is your statutory redundancy payment or a higher payment from your employer.

If you have been employed for two years or more and are made redundant, you are usually entitled to redundancy pay. The legal minimum you can receive is known as "statutory redundancy pay." However, there are exceptions, such as if your employer offers to keep you on or provides suitable alternative work, which you then refuse without a valid reason.

The amount of statutory redundancy pay depends on your age and length of service and is calculated as follows:

• Under 22: Half a week’s pay for each full year of service
• Aged 22 to 40: One week’s pay for each full year of service
• Over 41: One and a half weeks’ pay for each full year of service

Weekly pay is capped at £700, with a maximum of 20 years of service considered. The maximum statutory redundancy pay for 2024-25 is £21,000, with slightly higher limits in Northern Ireland.

Employers can choose to offer a higher redundancy payment, or you may be entitled to one based on the terms of your employment contract.

You can typically claim tax relief on private pension contributions up to 100% of your annual earnings, subject to certain limits. Tax relief is applied at your highest rate of income tax, meaning:

• Basic rate taxpayers receive 20% pension tax relief
• Higher rate taxpayers can claim 40% pension tax relief
• Additional rate taxpayers can claim 45% pension tax relief

For basic-rate taxpayers, the initial 20% tax relief is usually applied by the employer. Higher and additional rate taxpayers can claim the extra relief through their self-assessment tax return.

Taxpayers can claim on their self-assessment return for private pension contributions as follows:

• 20% relief on income taxed at 40%
• 25% relief on income taxed at 45%

Alternatively, taxpayers can contact HMRC to claim the relief if they pay 40% income tax and do not submit a self-assessment return.

These rates apply in England, Wales, and Northern Ireland, but there are some regional variations for Scotland.

There is an annual allowance of £60,000 for pension tax relief. Taxpayers can carry forward any unused allowance from the previous three tax years, provided they made pension contributions during those years. The lifetime limit for pension tax relief was abolished as of 6 April 2023.

CGT is generally charged at a flat rate of 20% on most chargeable gains for individuals. However, if taxpayers are within the basic rate tax bracket and make a small capital gain, they may be eligible for a reduced CGT rate of 10%. Once their total taxable income and gains exceed the higher-rate threshold, the excess is taxed at the 20% rate.

A higher CGT rate applies to gains from the disposal of residential property (excluding a principal private residence). Basic rate taxpayers are charged 18% (2023-24: 18%), while higher-rate or additional-rate taxpayers are charged 24% (2023-24: 28%). If a gain pushes a taxpayer into the higher-rate bracket, CGT may be payable at both rates.

There is an 18% basic rate and 28% higher or additional rate that applies to gains on carried interest (the share of profits paid to asset managers).

There is an annual CGT exemption for individuals, currently set at £3,000 for 2024-25. Spouses and civil partners have their own separate exemption, with same-sex couples treated the same as married couples for CGT purposes.

Most CGT payments are typically due by 31 January following the end of the tax year in which the gain was made. However, CGT on residential property sales that do not qualify for Private Residence Relief (PRR) must be paid within 60 days of the sale.

Most gifts made during a person’s lifetime are not subject to tax at the time of transfer. These gifts, known as "potentially exempt transfers" (PETs), can become fully exempt if the donor survives for more than seven years after making the gift.

If the donor passes away within three years of the gift, the inheritance tax is treated as if the gift was made upon death. A tapered relief applies if death occurs between three and seven years after the gift, reducing the tax liability based on the time elapsed.

The effective tax rates on the amount exceeding the Inheritance Tax nil rate band are as follows:

• 0 to 3 years before death: 40%
• 3 to 4 years before death: 32%
• 4 to 5 years before death: 24%
• 5 to 6 years before death: 16%
• 6 to 7 years before death: 8%
• 7 or more years before death: 0%

However, these tapered rates do not reduce the tax on a lifetime chargeable transfer below the amount initially chargeable and offer no benefit for transfers within the nil rate band.

We strongly recommend maintaining a record of any PETs you make, including details of exemptions used and any regular gifts made out of surplus income.

The freezing of tax thresholds often leads to a phenomenon known as fiscal drag. When tax thresholds remain unchanged, taxpayers will likely pay more tax as their earnings rise without a corresponding increase in allowances. As a result, more people are “dragged” into higher tax brackets or into paying tax for the first time. This process effectively acts as a stealth tax.

While fiscal drag is not uncommon, its impact depends on three key factors, the government setting of thresholds and allowances, inflation and wage growth.

How thresholds are determined is critical, especially in periods of high inflation.

Adjusting thresholds in line with inflation or another index is referred to as "indexation." The government’s policy of increasing certain thresholds annually based on inflation is known as "uprating." However, this policy is not always implemented. When thresholds are frozen, tax revenues increase for HM Treasury without any corresponding rise in tax rates.