how much redundancy is tax free

In the UK, the usual answer is that up to £30,000 of a genuine redundancy payment can be tax free, with anything above that normally taxed as income through PAYE.

What “tax‑free redundancy” actually means

• The £30,000 limit applies to the redundancy/termination element only (statutory or enhanced), not to normal pay.

• Salary, holiday pay, bonuses and Pay In Lieu Of Notice (PILON) are treated as normal earnings and are fully taxable, even if you are being made redundant.

• The employer usually operates tax on the taxable part via payroll, but you are still responsible for checking your overall position for the tax year.

Current UK position (2025/26 context)

• Guidance for 2024–26 continues to state that the first £30,000 of statutory or enhanced redundancy pay is normally free of Income Tax and National Insurance.

• Any redundancy amount above £30,000 is fully taxable at your marginal tax rate (basic, higher or additional), and this can push you into a higher band in the year you’re paid.

When the £30,000 tax‑free rule may not apply cleanly

• The payment has to be a genuine redundancy / termination payment (i.e., for loss of employment), not disguised salary or a contractual payment that you were always entitled to.

• If part of the package is an agreed PILON that is contractual, that portion is taxed like normal wages, not under the £30,000 exemption.

• Some complex packages (e.g., with shares, non‑compete payments or damages) can have mixed tax treatment and may need tailored advice.

Non‑UK note (Australia example)

If you were asking generally and not specifically about the UK, other countries have different thresholds. For example, in Australia the tax‑free part of a genuine redundancy is calculated each year as a base amount plus an extra amount per completed year of service (for 2025–26: 13,100 AUD plus 6,552 AUD per full year).

Quick checklist if you’re being made redundant

• Confirm your country and tax year (rules and thresholds are jurisdiction‑specific and can change).

• Ask HR for a clear breakdown of:
  1. Statutory redundancy pay.
  2. Any enhanced / ex‑gratia redundancy.
  3. Pay in lieu of notice.
  4. Holiday pay and any bonuses.
• Check that only the genuine redundancy element is being put against the tax‑free allowance (up to £30,000 in the UK).

If you say which country you are in and roughly what numbers you’re looking at, a more tailored, step‑by‑step explanation can be given.

Information gathered from public forums or data available on the internet and portrayed here.