Answers · UK 2025/26
How much redundancy pay is tax-free in 2026?
Up to £30,000 of genuine redundancy pay is tax-free. Any element above £30,000 is subject to income tax (but not NI).
Full answer
Payments made as genuine compensation for termination of employment (redundancy payments, ex-gratia payments, settlement agreement amounts) are tax-free up to £30,000. Amounts above £30,000 are subject to income tax at your marginal rate but not National Insurance. Contractual payments in lieu of notice (PILON), holiday pay and bonuses are always taxable as earnings regardless of how they are labelled. HMRC scrutinises payments that try to reclassify earnings as termination payments.
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.