How the rule works
The £30k redundancy tax-free rule says that the first £30,000 of qualifying termination payments is exempt from income tax. That one pot covers all qualifying payments from your employer (and associated employers) linked to your job ending, added together. Anything over £30,000 is taxed as income.
What counts towards the £30,000
- Statutory redundancy pay (up to £22,530 in 2026/27).
- Enhanced redundancy pay under your employer's scheme.
- Genuine ex gratia payments for loss of employment.
What sits outside it
These are taxed as earnings regardless of the £30,000:
- Pay in lieu of notice. See what PILON is, or estimate the tax with the notice pay calculator.
- Accrued holiday pay and final wages.
- Bonuses and commission that you are contractually due.
- Payments for restrictive covenants or other conditions not tied to termination itself.
Worked example: under the limit
Raj receives £14,000 statutory redundancy pay and a £9,000 enhancement. The total of £23,000 is under £30,000, so the whole amount is tax-free.
Worked example: over the limit
Elena receives £22,530 statutory pay and a £15,000 enhancement, a total of £37,530. The first £30,000 is tax-free, and £7,530 is taxable. If it falls in her basic-rate band, that is about £1,506 of tax at 20%, or £3,012 at 40% if it takes her into the higher rate. Her employer also pays employer National Insurance on the £7,530.
Why timing and structure matter
A large taxable excess is added to your other income in that tax year. If you leave in January and start a new job straight away, the tax on the excess may be higher than if you left just after 6 April. How a payment is described in your agreement also affects its treatment, so check the wording of any settlement agreement before signing.
What to do next
Start with your statutory figure in the redundancy pay calculator and add any enhancement. For the broader picture of what is and is not taxed, read is redundancy pay taxed?