How much of your redundancy package is tax-free, what's taxable, and how the £30,000 threshold really works.
The short answer: the first £30,000 of a genuine redundancy payment is completely tax-free in the UK. Anything above £30,000 is taxed as employment income at your normal marginal rates (20%, 40%, or 45%).
But it's not always that simple. The tax treatment depends on what kind of payment you're receiving. Employment tribunals frequently see disputes over whether a termination payment counts as "genuine redundancy" or is really a payment for work done.
Not everything in your final payslip is part of your redundancy settlement. The following are always taxable as normal earnings:
These payments are covered by the £30,000 exemption (if they're genuinely part of a redundancy or termination package):
The £30,000 exemption applies to the total of your non-salary termination payments. Here's an example:
Example: Sarah is made redundant after 10 years. She receives:
Total redundancy package: £32,000
Taxable portion: PILON (£8,000) + holiday pay (£2,500) = £10,500 — taxed as normal pay.
Tax-free portion: Statutory + contractual redundancy = £21,500 — all within the £30,000 exemption, so no tax.
If Sarah's redundancy pay had been £35,000, then £30,000 would be tax-free and the remaining £5,000 would be taxed at her marginal rate.
Any amount above £30,000 is taxed as employment income in the tax year you receive it. This means it uses your Personal Allowance and can push you into a higher tax band.
You don't need to pay National Insurance on termination payments above £30,000 — it's income tax only.
Since April 2018, the rules around PILON changed significantly. If your employment contract includes a PILON clause, any payment you receive instead of working your notice is always taxable as earnings — regardless of whether it's labelled as a redundancy payment.
If there's no PILON clause in your contract, the payment for notice is still taxable, but it may be eligible for the £30,000 exemption as part of your overall termination settlement.
Statutory redundancy pay is calculated based on your age and length of continuous service:
There's a cap on the weekly pay used (currently £643 from April 2025) and a maximum of 20 years' service counts.
Your employer will report your redundancy payment on a form P45. If you're receiving a salary and a tax-free payment in the same tax year, your tax code might be adjusted. If your redundancy payment exceeds £30,000, your employer will deduct tax via payroll (RTI).
If you've already left the company and later discover your redundancy was mis-Taxed, you'll need to file a Self Assessment tax return — see our guide to Self Assessment for help.
Work out your take-home pay on a new salary after redundancy, or check what your redundancy might mean for your tax position: