Is redundancy pay tax free in the UK?
Understand the UK £30,000 termination-payment tax exemption, what can count towards it, and why notice pay, wages and holiday pay are treated differently.
The £30,000 rule
Statutory redundancy pay and qualifying additional severance payments can usually fall within a combined £30,000 tax-free amount. Amounts above that combined threshold can be taxable.
Statutory redundancy pay and qualifying additional or enhanced severance payments can normally count towards the exemption.
Pay for a notice period, including amounts treated as post-employment notice pay, is not simply tax-free because it is paid when you leave.
Outstanding wages and holiday pay are earnings and are generally subject to the normal tax and National Insurance rules.
Income tax can apply to the qualifying termination-payment amount above the combined £30,000 exemption.
Why the final payslip can look complicated
A redundancy package often combines several different types of payment. The label on the overall package does not determine the tax treatment of every component, so check the employer's breakdown rather than applying £30,000 to the whole final payment.
First estimate the statutory element with the redundancy pay calculator, then keep notice pay, holiday pay and normal earnings separate when checking the final figures.
Enhanced redundancy payments
An enhanced payment can potentially share the £30,000 exemption with statutory redundancy pay, but the precise tax treatment depends on what each payment is actually for. HMRC rules on termination payments should be used for the final tax position.
Tax treatment checked against current GOV.UK guidance on termination payments. This is general information, not tax advice.
Common questions
Qualifying statutory and additional severance payments can usually share a combined £30,000 tax-free amount.
No. Notice-related pay can be taxable as earnings and should not automatically be treated as part of the £30,000 exemption.
No. Outstanding holiday pay is generally treated as earnings and taxed under the normal rules.