Is Redundancy Pay Tax-Free? The £30,000 Rule Explained

The first £30,000 of redundancy pay is completely free of income tax and National Insurance — this covers both statutory and any enhanced payment your employer adds.

What counts towards the £30,000?

• Statutory redundancy pay ✓
• Enhanced/contractual redundancy pay ✓
• Ex-gratia payments ✓
• Pay in lieu of notice (PILON) ✗ — this is taxable
• Holiday pay owed ✗ — taxable

Above £30,000

Any redundancy payment over £30,000 is subject to income tax at your marginal rate. There is still no National Insurance on the excess — just income tax.

Timing matters

If your redundancy payment takes you into the higher-rate band for the tax year, you may owe additional tax. Consider whether you can time the payment across two tax years.