2026/27 Tax Year

Is Redundancy Pay Taxed?

Q: Is redundancy pay tax-free?

The first £30,000 of a genuine redundancy payment is tax-free and free of National Insurance. Anything above £30,000 is taxed as income at your normal rates, and Class 1A National Insurance may also apply to the employer on amounts over £30,000.

Q: Does the £30,000 exemption cover my whole payout?

No — it only covers the genuine redundancy element. Payments in lieu of notice, unused holiday pay, and any contractual bonus are usually taxed as normal income and don't count toward or benefit from the £30,000 exemption.

Q: Is pay in lieu of notice taxed?

Yes, payment in lieu of notice (PILON) is taxed as normal earnings, whether or not your contract has a PILON clause. It doesn't benefit from the £30,000 redundancy exemption.

Q: What if my redundancy payment is over £30,000?

The amount above £30,000 is added to your other income for the year and taxed at your marginal rate (20%, 40% or 45% depending on your total income), and may also attract employer National Insurance, though this is usually the employer's liability rather than deducted from your pay.

By Rasika F.

Updated July 2026 • PayToolkit

The £30,000 exemption and how the rest of your payout is taxed | Updated 5 September 2026

Last Updated5 September 2026

Quick Answer

The first £30,000 of a genuine redundancy payment is tax-free and free of National Insurance. Anything above that is taxed as normal income. Other elements of your payout — like pay in lieu of notice or unused holiday — are usually taxed separately as normal earnings.

The £30,000 Tax-Free Exemption

Genuine redundancy payments (statutory or enhanced contractual redundancy pay) benefit from a £30,000 tax-free exemption. This applies once per redundancy, regardless of how the payment is structured, and covers both Income Tax and National Insurance on that portion.

What Counts as Redundancy Pay

Statutory redundancy pay and any additional ex-gratia or enhanced redundancy payment your employer chooses to make both usually qualify for the exemption, as long as they genuinely compensate for loss of employment rather than being payment for work done or notice.

Other Elements of Your Payout

Pay in lieu of notice (PILON) — taxed as normal earnings, doesn't benefit from the exemption
Unused holiday pay — taxed as normal earnings
Outstanding salary or bonus — taxed as normal earnings
Genuine redundancy element — first £30,000 tax-free

Worked Example

You receive a £45,000 redundancy payment, alongside £3,000 pay in lieu of notice. The £3,000 PILON is taxed as normal income. Of the £45,000 redundancy element, the first £30,000 is tax-free, and the remaining £15,000 is taxed at your marginal rate alongside your other income for the year.

Frequently Asked Questions

Is redundancy pay tax-free?

The first £30,000 of genuine redundancy pay is tax-free and free of National Insurance. Anything above is taxed as income.

Does the £30,000 exemption cover my whole payout?

No — only the genuine redundancy element. PILON, unused holiday and bonuses are taxed as normal income.

Is pay in lieu of notice taxed?

Yes, PILON is taxed as normal earnings and doesn't benefit from the £30,000 exemption.

What if my redundancy payment is over £30,000?

The excess is added to your other income for the year and taxed at your marginal rate.

Sources & Methodology

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