Answers · UK 2025/26
How is redundancy pay taxed in the UK?
The first £30,000 of statutory or enhanced redundancy pay is tax-free. Anything above £30,000 is subject to Income Tax at marginal rate (20%/40%/45%) and Class 1 NI. Notice pay (PILON) is fully taxable from day one.
Full answer
UK redundancy tax 2025/26. Tax-free £30,000 threshold: applies to genuine redundancy payments — statutory minimum and any enhanced contractual amount, ex gratia goodwill payments. Above £30,000: taxable Income Tax at your marginal rate (20%/40%/45%) + Class 1 employer/employee NICs (15%/8%). Statutory redundancy pay calculation 2025/26 (capped at £719/week, max 20 years counting): under 22 yrs old × 0.5 wks/yr; 22-40 yrs × 1 wk/yr; 41+ yrs × 1.5 wks/yr. Maximum statutory = 30 × £719 = £21,570 — fully within tax-free limit. Components of a redundancy package and tax treatment. (1) Statutory redundancy: tax-free up to £30k. (2) Enhanced contractual redundancy: tax-free up to £30k combined. (3) PILON (Payment In Lieu of Notice): FULLY TAXABLE from April 2018 onwards (HMRC closed loophole) — even if labelled "redundancy", any amount equivalent to your notice period is subject to Income Tax + NI. (4) Holiday pay accrued: fully taxable. (5) Unused bonus / commission: fully taxable. Practical advice: get a written breakdown from your employer separating each component. Consider salary sacrifice into pension for amounts above £30k — saves Income Tax + NI. If the redundancy pushes you into higher-rate band, that excess income is taxed at 40%/45%. Plan tax year timing: if you can delay payment to next tax year (April), you might lower marginal rate.
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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.