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Is Redundancy Pay Taxed in the UK?

Short answer: genuine redundancy pay is tax-free up to £30,000. The catch is that your final payslip often includes other money that is taxed, and that is where people get caught out.

By the UrbiTools editorial team · Rates checked against GOV.UK · Updated

The short answer

Is redundancy pay taxed in the UK? Statutory redundancy pay is not. The first £30,000 of genuine redundancy and other termination payments is free of income tax and employee National Insurance. Because the statutory maximum is £22,530 in 2026/27, statutory redundancy pay alone will always fall inside that limit.

What is tax-free

  • Statutory redundancy pay.
  • Enhanced or contractual redundancy pay, if it is a genuine redundancy payment.
  • Ex gratia (goodwill) payments made on termination.

These all count towards the same £30,000 pot. Our £30,000 rule guide explains how the pot is used up.

What is taxed

These are treated as earnings and taxed through payroll, even if they arrive on the same day:

  • Pay in lieu of notice (PILON). Taxable as earnings since April 2018, with income tax and National Insurance. See what PILON is.
  • Accrued holiday pay you have not taken.
  • Final wages, commission and bonuses you are owed.
  • Any termination payment above £30,000. The excess is taxed as income.

Worked example

Priya is made redundant on a £48,000 salary. She receives £11,000 statutory redundancy pay, £4,000 PILON and £1,200 of accrued holiday pay. Only the £11,000 is tax-free. The £5,200 of PILON and holiday pay goes through payroll as earnings, so she should expect a smaller final payslip than the headline total suggests.

If her employer had also paid a £25,000 enhanced redundancy payment, her redundancy payments would total £36,000. The first £30,000 is tax-free and the remaining £6,000 is taxable.

Check your payslip

Ask your employer for a written breakdown that separates redundancy pay from notice pay, holiday pay and wages. Tax coding on a one-off payment is often emergency-based, so if too much tax is deducted you can usually reclaim it from HMRC.

What to do next

Work out your statutory figure with the redundancy pay calculator, then see how the age bands drive that number in how redundancy pay is calculated. Free, impartial advice is available from Acas, and HMRC can confirm the tax treatment of your payments.

Sources & official guidance

Frequently asked questions

Is statutory redundancy pay taxable?
No. Statutory redundancy pay is at most £22,530 (2026/27, Great Britain), which sits inside the £30,000 tax-free limit, so on its own it is free of income tax and National Insurance.
Will my employer deduct tax from my redundancy pay?
Not from the tax-free part. They will deduct tax and National Insurance from anything that counts as earnings, such as notice pay, accrued holiday pay and final wages, and from any termination payment above £30,000.
Do I pay National Insurance on redundancy pay?
Not on genuine redundancy payments. Employee National Insurance is due on pay in lieu of notice and other earnings in your final pay packet, but not on the redundancy payment itself.
Does redundancy pay count towards the higher-rate tax threshold?
Only the taxable part does. A payment above £30,000 is added to your other income for that tax year, which can push you into a higher band, so the timing of your leaving date can matter.

Related calculators

Redundancy Pay CalculatorGet your exact statutory figure with a year-by-year breakdown.Notice Pay (PILON) CalculatorSee the tax on payment in lieu of notice.

More: redundancy pay guides

Statutory Redundancy Pay Explained (2026/27)How the age-band formula works, who qualifies, the £751 cap, and how redundancy pay is taxed.How Redundancy Pay Is Calculated: The Age BandsThe three age bands and the weekly cap, with four worked examples.Can You Be Made Redundant on Maternity or Paternity Leave?The extra protection, priority for suitable vacancies, and what you are still owed.Do I Get Redundancy Pay If I Resign?Usually not — plus the exceptions, including voluntary redundancy.The £30,000 Tax-Free Redundancy Rule ExplainedWhat counts towards the limit, what doesn't, and how the excess is taxed.Redundancy Notice Periods: Your RightsStatutory notice by length of service, time off to job hunt, and trial periods.