Find out more about Redundancy

This is part of a series of articles on Tax and Redundancy. Click here for the first post in this series.

Reducing the Tax payable

The previous calculations focussed on reducing the amount of the Lump Sum payment that tax is calculated on.
This final calculation examines the amount of the tax charge and looks to reduce it further. This is called Top Slicing Relief.
The key consideration in giving Top Slicing Relief is that the individual should not suffer a tax rate on their Lump Sum in excess of the average rate of tax paid on all their income for the previous 3 years.

i.e. if the lump sum is being taxed at the higher rate (41% in 2009) and the average tax rate applicable for the preceding 3 years was 35%, then a taxable lump sum of €16,800 would give :

Top-Slicing Relief of: €16,800 x (41%-35%) = €1,008.

Top Slicing Relief does not affect your initial tax calculations, but reduces the final figure, in this case by €1,008.

When to Claim

Top Slicing Relief cannot be claimed until after the end of the tax year in which the redundancy payment was received. However, you will need to make sure that your previous 3 years taxes are correct before this can be reviewed – you can work on this straight away!