Redundancy Tax Calculator
Is redundancy pay taxable in the UK?
Statutory and non-contractual redundancy payments are tax-free up to £30,000. Anything above £30,000 is taxed as ordinary income at your marginal rate (20%, 40% or 45%) and may also be subject to employer National Insurance from April 2026 onwards. Contractual notice pay and bonuses are always fully taxable.
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Being made redundant triggers specific tax rules. The first £30,000 of a genuine redundancy payment is completely tax-free. Only amounts above £30,000 are taxed at your marginal rate.
A common mistake is confusing redundancy pay with other payments. Payment in lieu of notice (PILON) is fully taxable – it's treated as earnings, not redundancy. Holiday pay and outstanding bonuses are also taxed normally.
Understanding what's taxable helps you plan for life after redundancy. Consider paying taxable amounts into a pension to reduce the tax hit. Enter your details below to see exactly how much you'll receive.
Redundancy Details
Include statutory redundancy, enhanced redundancy, and any ex-gratia payments
Statutory redundancy is always part of your £30k tax-free allowance
Include salary earned before redundancy, dividends, rental income, etc.
Tax Band
Basic rate (20%)
Tax Breakdown
Tax-Free Amount
£30,000
First £30,000 is tax-free
Taxable Amount
£5,000
Amount above threshold
Estimated Tax Due
£1,000
Effective rate: 2.9% of total payment
Net Redundancy Payment
£34,000
Amount you'll receive after tax
Key Assumptions
- • 2026/27 tax year rates apply
- • Payment is genuine redundancy (not disguised bonus)
- • No contractual PILON included (taxed separately)
- • Standard personal allowance applies
- • Scottish income tax rates not applied
How this redundancy tax calculator works (2026/27)
This redundancy tax calculator splits your settlement into two parts: the genuine redundancy element, which is tax-free up to £30,000, and everything else (PILON, holiday pay, bonuses), which is taxed as normal earnings. It then adds any excess over £30,000 to your other income for the year and applies the 2026/27 income tax bands below.
| Tax band | Taxable income | Rate | Tax on £10,000 above £30k |
|---|---|---|---|
| Personal allowance | Up to £12,570 | 0% | £0 |
| Basic rate | £12,571 – £50,270 | 20% | £2,000 |
| Higher rate | £50,271 – £125,140 | 40% | £4,000 |
| Additional rate | Over £125,140 | 45% | £4,500 |
Income Tax bands & Personal Allowance (UK) — 2026/27, verified 2026-04-06. Source: GOV.UK. Personal Allowance frozen at £12,570 until 5 April 2031 (freeze extended at the November 2025 Budget).
What this means for your settlement
Only genuine redundancy pay is tax-free up to £30,000 — payments in lieu of notice (PILON), accrued holiday and bonuses are taxed and NI'd as if they were normal salary. If your total settlement straddles the £30k mark, the excess is added to your other income for that tax year and could push you into a higher band.
Worked example: a £45,000 settlement made up of £38,000 genuine redundancy pay and £7,000 PILON, on a £55,000 salary. The first £30,000 is tax-free; the £8,000 excess is taxed at 40% (£3,200), and the £7,000 PILON is taxed at 40% plus 2% employee NI (£2,940). You keep roughly £38,860 of the £45,000 — this redundancy tax calculator does that split for your own figures.
A common rescue: ask your employer to pay any taxable excess directly into your pension. That avoids tax and NI entirely on the contribution, and you keep more of the money working for retirement instead of HMRC taking 20–45%.
⚖️ Unsure if your settlement offer is fair?
First4Lawyers can match you with a UK employment solicitor for a free, no-obligation chat to review your redundancy or settlement agreement before you sign.
📱 Plan the months after your payout
Emma App pulls all your bank accounts, savings and bills into one view so you can see exactly how long your redundancy lump sum will last.
Try Emma freeUnderstanding Redundancy Tax in the UK
When you're made redundant, the tax treatment of your payment depends on what it includes. Understanding the difference between tax-free and taxable elements can help you plan effectively and potentially reduce your tax bill.
The £30,000 Tax-Free Threshold
Usually Tax-Free (up to £30,000)
- • Statutory redundancy pay
- • Enhanced/contractual redundancy
- • Ex-gratia payments
- • Non-contractual PILON
- • Compensation for loss of employment
Always Fully Taxable
- • Contractual PILON payments
- • Outstanding salary and wages
- • Accrued holiday pay
- • Bonus payments
- • Commission owed
Redundancy Pay vs Notice Pay
This is where many people (and some employers) get confused:
Redundancy Pay
Compensation for losing your job. The first £30,000 is tax-free. This includes statutory redundancy, enhanced redundancy, and genuine ex-gratia payments.
Notice Pay (worked)
If you work your notice period, this is normal salary—fully taxable with Income Tax and NI.
PILON (Payment in Lieu of Notice)
If your employer pays you instead of making you work notice: contractual PILON is fully taxable; non-contractual PILON counts towards your £30,000 tax-free threshold.
Common Employer Payroll Errors
Check your final payslip carefully. Common mistakes include:
- Taxing the full amount: Some payroll systems automatically tax everything. You may need to reclaim overpaid tax via HMRC.
- Applying NI to redundancy pay: Genuine redundancy payments are NI-exempt, but some employers incorrectly deduct NI.
- Incorrect PILON treatment: Non-contractual PILON should count towards your £30,000 threshold, not be taxed as earnings.
- Wrong tax code: If you're leaving mid-year, ensure your tax code reflects any unused personal allowance.
Tax-Saving Strategies
Pension Contributions
Divert taxable redundancy into your pension for 100% tax relief (within allowances).
Timing the Payment
If possible, receive payment in a tax year where you'll have lower other income.
Salary Sacrifice
Increase pension contributions in your final months to reduce taxable earnings.
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