How is enhanced redundancy pay taxed above GBP30,000?

Full answer

The GBP30,000 tax-free threshold for redundancy payments applies to the total termination package -- combining statutory redundancy pay and any enhanced (ex-gratia) payment made by the employer as part of the same redundancy. For 2026/27, the statutory redundancy weekly pay cap is GBP751 per week, and the maximum statutory redundancy payment is GBP22,530 (30 weeks at GBP751). Amounts above GBP30,000: any redundancy payment (statutory or enhanced) above GBP30,000 in a tax year is taxable as non-savings income at your marginal Income Tax rate (20%, 40%, or 45%), but it is NOT subject to National Insurance contributions (unlike regular salary). This makes redundancy payments above GBP30,000 slightly more tax-efficient than equivalent salary. What counts towards the GBP30,000: statutory redundancy pay; enhanced redundancy or ex-gratia payments; pay in lieu of notice (PILON) that is in excess of the PENP calculation (see below); and certain other payments on termination of employment. What does NOT count -- and is taxable from the first pound: post-employment notice pay (PENP) is always taxable and subject to NI. PENP is the basic pay for the unworked portion of the statutory notice period (or contractual notice if shorter). If you are paid in lieu of notice (PILON) under a contractual right, the full PILON is also taxable from day one (it is treated as earnings, not a termination payment). Injury awards: compensation for injury to feelings in discrimination cases has its own rules and may be partly exempt. Foreign service relief: if part of your employment was performed overseas, a portion of the redundancy payment may be exempt from UK tax. How to report: amounts above GBP30,000 are reported on your Self Assessment return (or HMRC can collect through your PAYE code). Employers deduct tax via PAYE on payments above GBP30,000 at the time of payment.

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