Wise words in taxing times
Q&A Ross Leckridge, chartered financial planner, considers redundancy and school fees
Q I’ve just found out I’m being made redundant. How can I make the most of my redundancy payout? (I don’t yet know my full package).
A Making financial decisions during a period of change can have a long-lasting effect on your future, so don’t do anything hasty. Take your time to plan things properly and make sure you’re thinking clearly before taking any action.
You may want to seek advice from a professional financial planner to consider all your options.
Firstly, understand your redundancy package. The first £30,000 is generally tax-free, but this will only include compensation for loss of employment and does not include salary, holiday pay, or bonuses, which will be taxed as usual.
If you have a say on when it’s paid, you could ask to spread it across two tax years to reduce your bill.
If your payment is going to result in a high tax bill, you could consider using some of it to make a pension contribution. This will reduce your tax obligation and boost your retirement savings at the same time.
Make sure you have a suitable emergency fund in place, savings to cover short-term planned expenditures, and reduce any high interest-bearing debts, such as credit cards.
If you still have some cash left over, you could consider investing some redundancy money (up to £20,000) in an ISA for long-term tax-free growth.
Q We send our two children to an independent school and are concerned about the imposition of VAT on school fees. How can we prepare?
A This measure could significantly increase your outgoings, so it’s important to prepare in advance.
A good start would be to review your current income, expenses, and savings to identify areas where you can cut back or reallocate funds, as a way to cover the increased cost of school fees. You could also check if the school offers any payment plans that would allow you to spread the cost over the year, easing the immediate financial burden.
Seeking professional advice from a financial planner would also be a good option. Cashflow planning is a particularly effective tool to map out various scenarios to help you to understand the impact of increased education costs on your financial future. You can then explore different options, such as using savings, adjusting expenses or “gifting” from grandparents, to help reduce any negative impact.
By taking these proactive steps, you can better manage the financial impact of rising school fees and continue to provide your children with the education you value.
This article should not be considered financial advice or an investment recommendation. Investment values may fall as well as rise.