Work​Entitlements.co.uk

Redundancy pay and tax: the £30,000 rule

Tax-free limit on redundancy payments

2026/27

£30,000

Statutory redundancy pay is always tax-free and counts towards the limit. Notice pay (PILON) and holiday pay are taxed as normal earnings — they never share the exemption.

The £30,000 exemption covers genuine compensation for losing the job: statutory redundancy pay, enhanced/contractual redundancy top-ups and ex-gratia leaving payments. Three common payslip lines are always taxable in full, whatever the total:

Anything above £30,000 is taxed at your marginal income-tax rate (the employer must deduct it via PAYE), and since April 2020 the employer also pays Class 1A National Insurance on the excess — though you pay no employee NI on any of the termination payment.

Working out the actual tax? Net-pay and tax-band arithmetic lives on our sister site Pay Packet — this site sticks to your entitlements. Your redundancy entitlement is here: statutory redundancy pay calculator.

Common questions

Is statutory redundancy pay itself ever taxed?
No — statutory redundancy pay is tax-free. It does count towards the £30,000, so a large enhanced package on top can push the combined total over the line.
Can I sacrifice redundancy pay into my pension?
Often, yes — the taxable excess above £30,000 can usually be paid into a pension gross by agreement with the employer, avoiding income tax now. Worth asking about before the termination date; take regulated advice for big sums.
Does redundancy pay affect Universal Credit or benefits?
It's treated as capital rather than income once paid: over £16,000 in savings ends UC eligibility; £6,000–£16,000 tapers it. New-style JSA is unaffected by capital.

Related calculators & guides

Sources for the figures on this page

Last checked 3 July 2026

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