Answers · UK 2025/26
How is a termination payment taxed above £30,000 in the UK?
The first £30,000 of a genuine redundancy or termination payment is tax-free and NI-free. Any amount above £30,000 is subject to income tax at your marginal rate. Employer NI (15%) is also due on the excess above £30,000 from April 2020 onwards.
Full answer
When an employment ends, whether by redundancy, settlement agreement or other termination, the tax treatment of any payment depends on its nature. **The £30,000 exemption** Statutory redundancy pay and ex-gratia termination payments are exempt from income tax and employee NI up to £30,000 per termination (a lifetime limit per job, not per person). This threshold has been unchanged since 1988. **What qualifies for the exemption?** - Statutory redundancy pay (calculated by HMRC formula based on age and service). - Enhanced redundancy pay (above the statutory minimum, up to the £30,000 cap). - Compensation for loss of office (ex-gratia, not contractual). - Non-contractual settlement agreement payments relating to the employment ending. **What does NOT qualify?** - Pay in lieu of notice (PILON) if contractual -- fully taxable as earnings since April 2018. - Holiday pay accrued but untaken -- fully taxable earnings. - Bonuses earned before termination -- fully taxable earnings. - Payments under a restrictive covenant -- fully taxable. **Tax on the excess above £30,000** The amount over £30,000 is treated as employment income and taxed at your marginal rate (20%, 40% or 45%) for 2026/27. It is not subject to employee NI, but since April 2020 employer Class 1A NI at 15% applies on the excess above £30,000. **PAYE timing** The employer should deduct PAYE from the taxable element using your current tax code. If a large payment takes you into a higher band, you may face a further balancing payment via Self Assessment. **Foreign service relief** If part of the employment was performed overseas, a proportion of the termination payment may qualify for foreign service relief, potentially increasing the effective exemption above £30,000. This is complex -- specialist advice is recommended.
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This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.