The £30,000 Tax-Free Rule
Statutory and most contractual (enhanced) redundancy pay combined are tax-free up to £30,000. Anything above that threshold is subject to Income Tax at your normal rate — but importantly, not National Insurance, even above £30,000.
Use our redundancy pay calculator to estimate your statutory entitlement, then apply this guide to work out the tax treatment.
What Counts Toward the £30,000?
- Statutory redundancy pay
- Enhanced/contractual redundancy pay on top of the statutory minimum
- Ex-gratia (goodwill) payments made purely because of the redundancy
What Doesn't Count — and Is Taxed Normally
- Notice pay (whether worked or paid in lieu) — taxed as normal income, including National Insurance
- Unpaid wages, holiday pay, bonuses owed — all taxed as normal salary
- Any payment tied to a restrictive covenant or non-compete — taxed separately, not covered by the £30,000 exemption
Worked Example
| Component | Amount | Tax Treatment |
|---|---|---|
| Statutory + enhanced redundancy | £25,000 | Tax-free (within £30,000 limit) |
| Payment in lieu of notice | £5,000 | Taxed as normal income (Income Tax + NI) |
| Total package | £30,000 | £25,000 tax-free, £5,000 taxed normally |
What If My Redundancy Pay Is Over £30,000?
The amount above £30,000 is added to your other income for the tax year and taxed at your marginal rate — potentially pushing some of it into a higher tax band if you receive it in one lump sum alongside your final salary. Your employer usually applies Income Tax through PAYE on the excess, but not National Insurance.
Related Calculators
Check Your Own Numbers
Rules like these are easier to apply once you can see your actual take-home pay, tax and NI broken down.
Open the Take-Home Pay Calculator →