I am made redundant and receive a lumpsum payment. What are the tax options?

Unfortunately a lot of people are made redundant lately. Most of the times you will be able to arrange a redundancy package. The amount mainly depends on the time you worked for the company.

Of course there are tax consequences.

When you get a redundancy package you can choose out of three options:

1. Payment in one lumpsum to your bankaccount

2. Income insurance from an insurance company or bank

3. Income insurance from your own limited company

What are the benefits of each option?

1. Payment in one lumpsum to your bankaccount

Normally when you are made redundant the employer will pay the redundancy package in one amount. The employer can also decide to pay you in monthly terms combined with a social security payment from the government but we will not discuss this further.

The lumpsum will be normally taxed. So this means that the whole amount will be taxed together with your other income during the year. The higher the income and lumpsum the sooner you will be in the highest tax scale of 52%. When normally your salary isn't taxed against 52% the lumpsum leads to a higher average taxation. There are ways to prevent this from happening. But the choice depends on your personal situation. If you will leave the country or if you have debts (depending on the amounts) we advice you to accept the lumpsum. If you want to stay here and find another job or start your own business you can decide to go for option 2 or 3.

Please be advised that you won't get the 30% ruling on the redundancy package.

2. Income insurance from an insurance company or bank

To prevent taxation of the whole redundancy package in one year you can decide to receive it in yearly parts. This can be done using a special insurance from an insurance company or a special savingsscheme from a bank. The employer then pays the lumpsum directly to the insurance company or bank and they will pay it to you in yearly parts, either starting immediately or at a certain date or age, for example as a pre pension at 60 or normal pension at 65. In the mean time the capital is growing with the yearly proftis on the capital made by the insurance company or bank.

The product can be very flexible and created around your personal situation. What is the benefit: monthly parts are now also normally taxed but not always against 52%. Again this depends on your personal situation. When your normal salary already is in the 52% tax scale you won't have a benefit now, but maybe in the future if the tax rates may go down again. When the retirement payments are done to you after the age of 65 they will be taxed at a lower tax rate which means that you than create a cash benefit. So it's a good way to save for your retirement. There is one condition: the insurance company or bank must be based in The Netherlands. So you can't choose an offshore insurance company. We believe this option may be a good solution in some situations.

3. Income insurance with your own limited company

Instead of using an external insurance company you can decide to use your own limited company as an insurance company. This way you keep in charge of your own money and you save taxes! It does mean that you have to invest the redundancy payment yourself in order to be able to pay out the needed income to you based on the agreement made with the limited company. Our specialized investment advisors would be happy to advise you about this. They will look for the best opportunities for you on the international market.

We can assist you with the whole procedure of setting up the limited company for a fixed fee of € 1.800 plus VAT. This will include:

• a personal meeting to discuss the situation
• create a 'stamrecht' agreement between employer and employee
• create a 'stamrecht' agreement between employee and the limited company which will be set up
• investigate the wishes regarding the articles of association
• create concept articles of association by the notary
• check the concept articles of association
• request statement of no objection from the ministry of Justice (including costs of this statement)
• set up of the limited company by the notary
• create lending agreement between employee and limited company if money is needed to do business
• registration with the tax authorities
• registration with the Chamber of Commerce
• capital tax
• advice during the whole procedure

• registration Chamber of Commerce
• administration costs -> annual accounts, corporate tax return, annual minutes for shareholders, correspondence with the tax authorities.

When you would like to start your own company this can be a good option and also if you have a reasonable redundancy payment.

Every situation is different and demands other solutions. We can advise you what to do.