How is the taxable part of my redundancy payment taxed at Scottish rates in 2026/27?

Full answer

A genuine redundancy payment qualifies for a £30,000 tax-free exemption that applies UK-wide, including Scotland. Only the excess above £30,000 is taxable. Because Scotland sets its own Income Tax rates on earnings, that taxable slice is taxed using the Scottish bands: starter 19%, basic 20%, intermediate 21%, higher 42% (£31,092–£62,430), advanced 45% (£62,430–£125,140), and top 48% above. The taxable excess sits on top of your other income for the year, so it is often taxed at your highest marginal rate. National Insurance is not charged on redundancy pay, which is a real saving compared with ordinary salary. Note the £30,000 exemption only covers the compensatory part — it does not cover payments you were contractually owed, such as accrued holiday pay, unpaid wages, or payment in lieu of notice (PILON), which are taxed and NI'd as normal earnings. Statutory redundancy pay always falls inside the exemption. Worked example: you are made redundant with a £50,000 package, of which £5,000 is holiday pay and PILON (taxed as earnings) and £45,000 is genuine redundancy compensation. The first £30,000 of the £45,000 is tax-free; the remaining £15,000 is taxable. If your other income already uses your Personal Allowance and fills the basic band, that £15,000 might span the Scottish intermediate (21%) and higher (42%) bands. Your employer usually deducts tax through PAYE, but lump sums can push you into a higher band, so check whether too much or too little was taken and reconcile via your Self Assessment or a P800. England, Wales and Northern Ireland use UK rates (20%/40%/45%) instead, but the £30,000 exemption and the NI treatment are identical.

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