# Tax on redundancy and termination payments: the £30,000 limit and notice pay

> When a job ends, some of what an employer pays can be tax free, up to a combined £30,000, and some is always taxed. This guide explains the £30,000…

- URL: https://centiview.com/uk-money/tax-on-redundancy-and-termination-payments
- Published: 2026-10-19T18:17:00.000Z
- Figures checked: 2026-10-19
- Edited by David A
- Topic: Tax (UK)
- Publisher: Centiview (Persie Ltd, London)
- General information only, not financial advice

When a job ends, some of what an employer pays can be tax free, up to a combined £30,000, and some is always taxed. This guide explains the £30,000 limit, notice pay, tax codes and what to check.

## What counts as a termination payment

A termination payment is money an employer pays when a job comes to an end, whether the person was made redundant, dismissed or chose to leave. GOV.UK says it can include statutory redundancy pay (the minimum the law requires), holiday pay, unpaid wages, extras such as bonuses or enhanced redundancy pay, and pay given instead of working a notice period. The employer, not the employee, is responsible for applying the right tax and National Insurance through payroll, normally in the final payslip. Because several different kinds of money can arrive together, the key to understanding the tax is to separate the parts, since each part is treated differently.

## The £30,000 limit and what sits outside it

GOV.UK explains that statutory redundancy pay, extra severance or enhanced redundancy payments, and non-cash benefits (for example company property you are allowed to keep) are usually free of Income Tax up to a combined total of £30,000. The limit is one pot shared by all of these, not £30,000 for each. Anything above £30,000 is taxed, and the employer pays Class 1A National Insurance, an employer-only charge, on the excess. Separately, the amount of statutory redundancy pay itself has its own cap. For redundancies on or after 6 April 2026, a week's pay is capped at £751 and the maximum statutory payment is £22,530, which is £751 multiplied by the 30 weeks you get after 20 full years at age 41 or over.

> **Key numbers** Tax-free pot for redundancy, severance and non-cash benefits: £30,000 combined. Statutory redundancy cap from 6 April 2026: £751 a week, £22,530 maximum. Personal Allowance 2026/27: £12,570. Figures checked 19 October 2026.

## Money that is always taxed

Some payments are taxable whatever the total. GOV.UK lists unpaid wages, holiday pay, bonuses and payments for agreeing to a restrictive covenant (a promise not to compete or poach staff) as subject to Income Tax and National Insurance. The same applies to what is called post-employment notice pay, or PENP. If you do not work your full notice period, the part of your termination payment that matches what you would have earned during the notice you did not work is taxed in full. It can be paid as pay in lieu of notice, as gardening leave pay (you stay on the payroll but are not asked to work), or as part of a severance or enhanced redundancy payment. Statutory redundancy pay is not treated as PENP.

Other items are outside tax altogether. GOV.UK says employer contributions to a registered pension scheme as part of the package are not taxed, unless they push you above the Annual Allowance (the yearly limit on tax-relieved pension saving). Legal costs paid directly by the employer to your solicitor for the settlement are not taxed, and nor is a payment made because an injury, illness or disability prevents you from carrying on the job. Non-UK tax residents and seafarers may be able to receive part of a payment tax free.

## A worked example

Here is an illustrative case with invented figures. Suppose someone is made redundant and does not work 6 weeks of notice. Their normal pay is £600 a week, so the PENP is 6 x £600 = £3,600. They receive £12,000 statutory redundancy pay and a £28,000 severance payment, £40,000 in all. First the PENP is taxed in full, with National Insurance. That leaves £40,000 minus £3,600 = £36,400 to test against the £30,000 limit. The first £30,000 is free of Income Tax, and the excess is £36,400 minus £30,000 = £6,400, which is taxable, with the employer paying Class 1A National Insurance on that £6,400. In total, £3,600 + £6,400 = £10,000 is taxed. If all of it fell within the basic rate band (£37,700 in England, Wales and Northern Ireland, the gap between £12,570 and £50,270), the Income Tax at 20% would be £2,000, plus National Insurance on the PENP. The real result depends on the person's other income that year.

## How the tax is taken and the tax code

The way the tax is collected can look alarming on the final payslip. GOV.UK says that if you are paid after your employer has issued your P45 (the form showing pay and tax to date), they use a 0T tax code, and tax is worked out as though your Personal Allowance has already been used up. That can mean more tax is deducted than your annual position requires. Equally, if the payment lifts your total income for the year above the previous year's, you may pay more tax than usual. Anyone who files a Self Assessment return should include the payment as additional information. If you think too much tax was taken or the payment was taxed wrongly, HMRC is the body to contact, and you can check your tax code online, in the HMRC app, on a payslip or on a Tax Code Notice.

## Rates, and where the rules differ

The £30,000 limit is a UK rule, but the rate at which any taxable amount is charged depends on where you live. For 2026/27, GOV.UK gives the standard Personal Allowance as £12,570, with rates in England, Wales and Northern Ireland of 20% to £50,270, 40% to £125,140 and 45% above that. Scotland sets its own rates on non-savings income: 19% (£12,571 to £16,537), 20% (to £29,526), 21% (to £43,662), 42% (to £75,000), 45% (to £125,140) and 48% above. The Personal Allowance also reduces by £1 for every £2 of adjusted net income above £100,000, and is nil from £125,140.

## Common mistakes and what to check

- Assuming every pound of a package is tax free: wages, holiday pay, bonuses and PENP are taxable even when the total is under £30,000.
- Forgetting that a payment received after a P45 may be taxed on a 0T code, which can overstate the year's tax.
- Not asking the employer for a written breakdown showing which parts are taxable and which are not.

Settlement terms usually split the payment into its parts, and it can be worth asking the employer or payroll team to explain the split in writing. If tax looks wrong afterwards, HMRC can review it. This guide is general information, not personal advice.

## Check before you act

Rules and rates change, and the treatment of a particular settlement depends on how it is worded. It can be worth confirming the figures on the official pages linked below before relying on them.

### Sources
- [GOV.UK, Tax on termination payments: what you pay tax and National Insurance on](https://www.gov.uk/termination-payments-and-tax-when-you-leave-a-job/what-you-pay-tax-and-national-insurance-on)
- [GOV.UK, Tax on termination payments: how tax and National Insurance are deducted](https://www.gov.uk/termination-payments-and-tax-when-you-leave-a-job/how-tax-and-national-insurance-are-deducted)
- [GOV.UK, Redundancy pay](https://www.gov.uk/redundancy-your-rights/redundancy-pay)
- [GOV.UK, Income Tax rates and Personal Allowances](https://www.gov.uk/income-tax-rates)
- [GOV.UK, Scottish Income Tax rates](https://www.gov.uk/scottish-rate-income-tax)
- [GOV.UK, Tax codes](https://www.gov.uk/tax-codes)