Redundancy is stressful enough without a surprise tax bill arriving weeks later. Understanding what you're owed — and how it's taxed — means you can plan ahead and protect as much of your payout as possible.
For context on how pension contributions can help, see our pension annual allowance guide. If you need to file a tax return after redundancy, see our Self Assessment guide.
Model your take-home after redundancy
Use the calculator to estimate your income tax for the year of redundancy.
Statutory Redundancy Pay
If you've been employed for at least 2 years, you're entitled to Statutory Redundancy Pay (SRP). The amount depends on your age, weekly pay, and length of service.
| Age during each year of service | Entitlement per year |
|---|---|
| Under 22 | 0.5 week's pay |
| 22–40 | 1 week's pay |
| 41 and over | 1.5 weeks' pay |
Weekly pay is capped at £643 (2024/25) and service is capped at 20 years, giving a maximum SRP of £19,290.
Many employers offer enhanced redundancy pay above the statutory minimum. The tax treatment is the same — the first £30,000 of the total package is tax-free.
The £30,000 tax-free threshold
The most important rule: the first £30,000 of a genuine redundancy payment is completely free of income tax and National Insurance.
| Total redundancy payment | £45,000 |
| Tax-free portion | £30,000 |
| Taxable amount | £15,000 |
| Tax owed (40% rate) | £6,000 |
The taxable portion is added to your other income for the year and taxed at your marginal rate.
What counts as a redundancy payment?
Not everything paid on leaving a job qualifies for the £30,000 exemption. HMRC distinguishes between:
Tax-free (up to £30,000):
- Statutory redundancy pay
- Enhanced redundancy pay
- Ex-gratia payments (genuine gifts with no contractual obligation)
Fully taxable (no exemption):
- Pay in lieu of notice (PILON) — taxed as earnings since April 2018
- Holiday pay owed
- Bonuses or commission earned before leaving
- Payments for restrictive covenants
Since April 2018, all PILON is taxable as earnings — even if your contract doesn't include a PILON clause. HMRC changed the rules to close a loophole. Do not assume your notice pay is tax-free.
How redundancy pay is taxed in practice
Your employer should deduct tax via PAYE on any amount above £30,000. However, they may use an emergency tax code if they don't have your full year's income picture.
If you've been made redundant part-way through the tax year, you may have unused Personal Allowance — meaning you could get a refund.
If you're made redundant and don't start a new job in the same tax year, contact HMRC or file a Self Assessment return to reclaim any overpaid tax. You may be owed hundreds or thousands of pounds.
Paying redundancy into your pension
One of the most tax-efficient things you can do with a redundancy payment is contribute it to your pension.
- Contributions up to your annual earnings (or £60,000, whichever is lower) qualify for tax relief
- If you've been made redundant mid-year, your earnings for that year may be lower — check your allowance
- Employer contributions from a redundancy package can sometimes be paid directly into your pension tax-free, above the £30,000 threshold — ask your employer's HR team
Employer contributions to a registered pension scheme are not subject to the £30,000 cap. This is a legitimate way to receive more than £30,000 tax-efficiently on redundancy.
Redundancy and benefits
A large redundancy payment can affect means-tested benefits. If you claim Universal Credit, a capital payment above £6,000 reduces your entitlement, and above £16,000 you become ineligible entirely.
Plan the timing of any pension contributions before claiming benefits.
What this means for you
If you earn £50,000 and receive a £20,000 redundancy payment, the full amount is tax-free. You keep all £20,000.
At £60,000 with a £45,000 redundancy package, £30,000 is tax-free and £15,000 is taxable at 40% — a £6,000 tax bill. Contributing that £15,000 to your pension instead eliminates the tax charge entirely and adds £15,000 to your retirement pot.
If you are made redundant mid-year and do not start a new job, you may have unused Personal Allowance. Contact HMRC or file Self Assessment to reclaim any overpaid tax — it could be worth hundreds.
Try the TaxCal UK calculator to estimate your take-home pay.
Summary
- Statutory Redundancy Pay is based on age, service, and weekly pay (capped at £643/week)
- The first £30,000 of genuine redundancy pay is tax and NI free
- PILON, holiday pay, and bonuses are fully taxable
- You may be owed a tax refund if made redundant mid-year
- Contributing redundancy pay to your pension is one of the most tax-efficient options available
FAQ
Is the £30,000 exemption automatic?
Yes. Your employer should apply it automatically through payroll. If they deduct tax on the full amount, contact payroll immediately — you are entitled to the exemption.
Does PILON count towards the £30,000 exemption?
No. Since April 2018, all pay in lieu of notice is taxable as earnings regardless of whether your contract includes a PILON clause.
Can I contribute my redundancy payment to my pension?
Yes, up to your annual earnings for the year or £60,000, whichever is lower. Employer contributions from a redundancy package can sometimes be paid directly into your pension above the £30,000 threshold — ask HR.
What if I'm made redundant and don't find a new job this year?
You may have unused Personal Allowance. Contact HMRC or file Self Assessment to reclaim any overpaid tax. You could be owed hundreds or thousands of pounds.
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