Is redundancy pay taxable in the UK?

Full answer

The UK tax treatment of redundancy and termination payments is nuanced and depends on the type of payment. The £30,000 exemption covers: statutory redundancy pay, enhanced redundancy pay, and certain other ex gratia payments that qualify as termination payments. This exemption is per employment, per redundancy event — not per tax year. Payments within the £30,000 threshold are free of both Income Tax and National Insurance. Pay in Lieu of Notice (PILON) is always treated as earnings, taxed under PAYE at your marginal rate and subject to NI — regardless of whether it's contractual PILON or non-contractual. Holiday pay accrued but unpaid is treated as earnings. Payments above £30,000: Income Tax is charged at your marginal rate. Employee NI (Class 1) is also charged on the element above £30,000 since April 2020. Termination payments included in the £30,000 exempt band include: redundancy payments (statutory or enhanced), compensation for loss of office, some ex gratia payments unconnected to employment. Excluded from the exemption (always taxable): contractual PILON, bonuses, commission, holiday pay, garden leave pay. Injury to feelings payments (in discrimination cases) are generally tax-free; personal injury compensation is tax-free. If your employer offers enhanced redundancy pay over £30,000, it is worth discussing with your employer whether payment into a pension could be structured — some employers will contribute the excess directly to a registered pension scheme, potentially tax-free.

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