Answers · UK 2025/26
What is garden leave and how is it taxed?
Garden leave is when an employer requires an employee to stay away from work during their notice period but keeps them on the payroll. The employee remains employed, continues to receive their full salary and benefits, but is not required (or permitted) to work. All pay during garden leave is fully taxable as employment income, subject to income tax and National Insurance.
Full answer
Garden leave (sometimes called "gardening leave") is a contractual arrangement where an employee who has resigned or been given notice continues to be employed and paid, but is not required or allowed to come into work. **Why employers use garden leave** - To prevent the employee working for a competitor immediately - To protect confidential information and client relationships - To buy time to brief clients and hand over work - To prevent the employee from recruiting colleagues Garden leave is most common in financial services, law, and senior management roles. **Tax treatment** Garden leave pay is ordinary salary -- it is not a termination payment or a special category. As such: - Fully subject to income tax (deducted via PAYE) - Fully subject to National Insurance (employee and employer) - Pension contributions usually continue during garden leave (check your employment contract) - Benefits in kind (company car, health insurance, etc.) continue and may be taxable as normal **Worked example** Marco earns £80,000/year (£6,667/month) and resigns in June 2026 with a 3-month garden leave period. Garden leave pay: 3 x £6,667 = £20,001 gross Income tax (40% rate on earnings above £50,270): approximately £5,780 Employee NI (2% above £50,270): approximately £400 Net garden leave pay received: approximately £13,821 **Obligations during garden leave** The employee remains bound by their employment contract: - Duty of confidentiality - Not to compete (if contract states this) - Must remain contactable and available to assist - Cannot start a new job **Difference from PILON** In garden leave, the contract continues and pay is earned in the normal way. In PILON (payment in lieu of notice), employment ends immediately and the employer pays a lump sum instead. Both are taxable, but through different mechanisms. **Breach of garden leave** If an employee starts work for a competitor during garden leave, the employer can seek an injunction or damages for breach of contract.
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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.