Do I pay tax on redundancy pay over GBP 30,000?

Full answer

Statutory and genuine ex-gratia redundancy payments benefit from a GBP 30,000 tax-free exemption. The slice above GBP 30,000 is treated as employment income, so it is taxed at your marginal Income Tax rate -- 20% in the basic band (gross income up to GBP 50,270), 40% in the higher band (up to GBP 125,140) and 45% above that. For 2026/27 the excess also attracts employee National Insurance, which HMRC applies to termination payments over GBP 30,000: 8% up to GBP 50,270 of total earnings and 2% above. Important: not everything in a redundancy package gets the exemption. Pay in lieu of notice (PILON), accrued holiday pay, bonuses and outstanding salary are fully taxable and NI-able from the first pound -- only the genuine compensation-for-loss-of-office element counts toward the GBP 30,000. Worked example: you are made redundant with a GBP 45,000 package made up of GBP 40,000 genuine redundancy pay plus GBP 5,000 holiday and PILON. The GBP 5,000 is taxed and NI'd in full. Of the GBP 40,000, the first GBP 30,000 is tax-free and the remaining GBP 10,000 is added to your income for the year. If that GBP 10,000 falls in the higher-rate band you pay GBP 4,000 Income Tax plus GBP 200 NI at 2% on it. A large lump sum can also push you over GBP 100,000, where the Personal Allowance tapers away (GBP 1 lost per GBP 2 over GBP 100,000), creating a 60% effective rate between GBP 100,000 and GBP 125,140. Watch the timing: receiving the payment in a year when your other income is low can keep more of the excess in the basic-rate band. Use the take-home pay calculator to model the net figure for your specific package and salary.

Try the calculator