Answers · UK 2025/26
How is redundancy pay taxed when it exceeds £30,000?
The first £30,000 of a genuine redundancy payment is tax-free. Any amount above £30,000 is subject to income tax at your marginal rate, but no employee National Insurance is due on the excess.
Full answer
HMRC allows the first £30,000 of a statutory or enhanced redundancy payment to be paid tax-free, with no income tax or employee National Insurance contributions on that portion. Any redundancy payment above £30,000 is treated as employment income and taxed at your marginal rate: 20% for basic-rate, 40% for higher-rate, or 45% for additional-rate taxpayers. Importantly, no employee NI (Class 1) is due on the excess above £30,000 even though income tax applies. However, employer NI (Class 1A) at 13.8% does apply to the portion above £30,000. Payments in lieu of notice (PILON) are always fully taxable and subject to NI regardless of the £30,000 exemption. For example, if you receive £50,000 redundancy pay, the first £30,000 is tax-free and the remaining £20,000 is taxable at your marginal rate.
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.