Key facts at a glance
Tax-free threshold
£30,000
Statutory + enhanced redundancy combined
Weekly pay cap
£751
From 6 April 2026, max 30 weeks
Max statutory payout
£22,530
20 years' service, age 41+, at the cap
The first £30,000 of a genuine redundancy payment, statutory plus any enhanced amount your employer adds, is tax-free and NI-free for you as the employee. Statutory redundancy itself is calculated from your age, service, and a weekly pay cap of £751 for terminations from 6 April 2026, capping the maximum statutory payout at £22,530. Anything above £30,000 gets taxed as ordinary income, and your employer pays 15% Class 1A NI on that excess, though you personally still don't pay NI on it.
The part that actually catches people out isn't the £30,000 rule itself, it's PENP: post-employment notice pay. If your employer pays you in lieu of working your notice, HMRC has a formula that decides how much of your package must be taxed as ordinary earnings before the £30,000 exemption even applies, and it applies whether or not your contract technically allows for a PILON payment. Below, we walk through exactly how the statutory formula, the £30,000 exemption, and PENP interact, with worked examples.
Work out your exact statutory entitlement, age band by age band, before you read on.
Open the Redundancy Pay CalculatorHow statutory redundancy pay is actually calculated
Statutory redundancy pay is built from three inputs: your age at each year of service, your length of continuous service (capped at 20 years), and your weekly pay (capped at £751 for terminations on or after 6 April 2026, even if you actually earn more). You get half a week's pay for each full year worked under age 22, a full week's pay for each full year between 22 and 40, and one and a half weeks' pay for each full year aged 41 or over. Add those bands together and multiply by your capped weekly pay to get your statutory entitlement, with the maximum possible payout landing at £22,530 (30 weeks at the £751 cap, for someone with 20 years' service entirely at age 41 or above).
You need at least two full years of continuous service to qualify for statutory redundancy at all. Anything your employer adds on top of the statutory minimum, an enhanced or ex-gratia payment, isn't calculated by this formula, but it shares the same £30,000 tax-free ceiling as the statutory amount.
Why PENP shrinks your tax-free room
Before 2018, some employers structured termination packages so that pay-in-lieu-of-notice could be squeezed into the tax-free £30,000 exemption alongside genuine redundancy compensation. HMRC closed that route with Post-Employment Notice Pay (PENP): a formula that calculates the minimum amount of your termination package that must be taxed as ordinary earnings, covering the notice period you didn't actually work, whether or not your contract has a formal PILON clause.
In practice, this means the £30,000 exemption doesn't apply to your whole termination package, it applies only to what's left after PENP is carved out and taxed separately as earnings. A longer unworked notice period, or a higher basic pay figure feeding the formula, means a bigger PENP amount and less of your package landing in genuinely tax-free territory. This is worth checking specifically if your employer is paying you to leave immediately rather than working your notice.
The £30,000 exemption, the £751 weekly cap, and PENP itself work identically across the whole UK. What differs for a Scottish taxpayer is the rate charged on any taxable slice above £30,000, since Scotland runs its own Income Tax bands separate from England, Wales, and Northern Ireland. If your PAYE tax code starts with S, use our Scotland Take-Home Calculator to work out the tax on the taxable portion.
Worked example: £25,000 total redundancy package
A statutory redundancy payment of £12,000 plus a £13,000 enhanced payment from your employer, £25,000 in total, with no PENP-taxable notice pay involved. Because the combined figure sits under £30,000, the entire amount is tax-free and NI-free, you receive all £25,000 with no deductions. This is the simplest case, and the one most people assume applies to their situation, even when it doesn't quite match reality once notice pay or unused holiday gets bundled in.
Worked example: £45,000 package including notice pay
A £45,000 total package including £8,000 of PENP-calculated notice pay for two unworked months. That £8,000 is taxed and NI'd as ordinary earnings first, in full. The remaining £37,000 of genuine termination compensation then gets the £30,000 exemption applied: £30,000 is tax-free, and the final £7,000 is taxed as income (but not employee NI'd), with your employer separately paying 15% Class 1A NI on that £7,000 excess. The headline £45,000 figure is not what lands tax-free, only £30,000 of it does.
Run your own redundancy payment through the calculator
Combine your taxable redundancy portion with your normal salary to see the real take-home impact for the tax year.
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Frequently asked questions
Is redundancy pay taxed in the UK in 2026?
The first £30,000 of a genuine termination payment, combining your statutory redundancy pay and any enhanced or ex-gratia payment your employer adds on top, is tax-free and free of employee National Insurance. Anything above £30,000 is taxed as income at your normal marginal rate, though it still doesn't attract employee NI. Where people get caught out is PENP (post-employment notice pay): any amount that represents notice you didn't work is always taxed as ordinary earnings, in full, before the £30,000 exemption is even applied.
How much statutory redundancy pay will I actually get?
Statutory redundancy uses your age, length of service, and weekly pay, capped at £751/week for terminations on or after 6 April 2026, whichever is lower than your real weekly pay. You get half a week's pay for each full year under 22, one week's pay for each full year aged 22 to 40, and one and a half weeks' pay for each full year aged 41 or over, capped at 20 years' service. The maximum anyone can receive is £22,530 (30 weeks at the £751 cap), and you need at least two years' continuous service to qualify at all.
What is PENP and why does it matter for my tax bill?
Post-Employment Notice Pay (PENP) is a formula HMRC introduced in 2018 to stop employers labelling what is really pay-in-lieu-of-notice as a tax-free termination payment. It calculates the minimum amount of your termination package that must be treated as ordinary taxed earnings, covering the notice period you didn't actually work, regardless of what your contract says or whether it has a formal PILON clause. Only the amount left over after PENP is deducted counts toward your £30,000 tax-free exemption, so a bigger PENP figure shrinks the tax-free room you have for the rest of the payment.
Does my employer pay anything extra if my termination payment goes above £30,000?
Yes. Since April 2020, employers pay Class 1A National Insurance at 15% (the 2026/27 rate) on the portion of a termination payment above £30,000. You as the employee don't pay any NI on that excess, only Income Tax at your normal rate, but it's worth knowing this cost exists on the employer side since it sometimes factors into how generous a negotiated settlement offer ends up being.
Is a settlement agreement payment taxed the same way as redundancy pay?
The £30,000 exemption and the PENP rules apply the same way to a settlement agreement as to a straightforward redundancy, provided the payment genuinely compensates for loss of employment rather than being disguised salary or bonus. What differs case by case is how much of a settlement package counts as PENP-taxable notice pay versus genuinely tax-free compensation, which is exactly the kind of detail worth getting checked by whoever is advising you on the settlement, since the wording of the agreement itself affects the tax treatment.
Do I pay tax on unused holiday pay included in my final payment?
Yes, in full. Accrued but unused holiday pay is treated as ordinary earnings, taxed and NI'd exactly like a normal salary payment, and it does not count toward or benefit from the £30,000 termination exemption at all. Employers commonly bundle it into the same final payslip as redundancy pay, which can make the total figure look more favourably taxed than it actually is if you don't separate the two elements out.
Why does my redundancy payslip show less than the tax-free amount I expected?
The most common reason is that part of your headline package, notice pay, unused holiday, or a contractual bonus, was never eligible for the £30,000 exemption in the first place and was always going to be taxed as ordinary earnings. The second most common reason is PENP: if your employer paid you in lieu of notice, HMRC's formula may classify more of the payment as taxable earnings than you expected, shrinking the genuinely tax-free portion. Ask your employer or a payroll adviser for a line-by-line breakdown of which parts of your payment fall under which treatment before assuming the whole figure was miscalculated.
How do I check what my redundancy payment means for my take-home pay this tax year?
Run your normal salary and the taxable portion of your redundancy payment (after applying the £30,000 exemption and PENP) through the UK Salary Calculator to see the combined Income Tax and National Insurance impact for the tax year. Because a large lump sum landing in one pay period can push you into a higher tax band for that period even if your annual income is lower, it's worth checking the actual PAYE cash-flow impact rather than assuming HMRC's year-end reconciliation will simply average it out for you in time.
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