By Team SalaryCalculate · 1/7/2026
When faced with redundancy, understanding your entitlements can significantly impact your financial situation. An important part of this is your redundancy payment which, in certain circumstances, you can receive tax-free. This article explores tax-free lump sums in redundancy, helping you maximize your benefits.
Understanding Redundancy Pay
Your redundancy pay is based on your age, length of service, and weekly pay. However, the weekly pay is capped at £719 (as of April 2025) and the maximum total payment you can receive is £21,570 (£719 × 20 years × 1.5). These limits are reviewed annually in April.
The calculation is as follows:
Half a week's pay for each full year of employment under 22
One week's pay for each full year of employment between 22 and 41
One and a half week's pay for each full year of employment over 41
Tax-Free Redundancy Payments
The good news is that redundancy payments up to £30,000 are tax-free. This includes any severance or termination payments. However, payments in lieu of notice (PILON), accrued holiday pay, and bonuses are taxable.
If you want to calculate your redundancy pay, you can use our redundancy severance calculator
When Redundancy Payments Exceed £30,000
If your redundancy payment exceeds £30,000, the excess amount will be subject to tax. This tax will be deducted at source by your employer before you receive the payment.
Redundancy and Pensions
If you're considering transferring your redundancy payment into your pension, it's important to know that this will not attract any tax. However, it will count towards your annual allowance for pension contributions. For more details, refer to our [redundancy pension calculator](/tools/uk/england/redundancy-pension-calculator).
FAQ
**Q: Do I need to declare my redundancy payment on my tax return?**
A: If your redundancy payment is less than £30,000, you don't have to declare it on your tax return. However, if it's more than £30,000, you should declare the excess amount.
**Q: Can I avoid tax if my redundancy payment is more than £30,000?**
A: There are legal ways to reduce the tax on redundancy payments over £30,000, such as making additional pension contributions. However, it's important to seek professional advice in this regard.
**Q: Is my redundancy pay affected if I find a new job?**
A: No, your redundancy pay is not affected if you find a new job. However, if you start the new job before your redundancy notice period ends, you may lose some benefits.
To understand more about the tax implications of redundancy, read our [redundancy-tax-implications](/blog/redundancy-tax-implications) blog post.
Conclusion
Understanding the tax implications of your redundancy pay can help you plan your finances better. Remember, redundancy pay up to £30,000 is tax-free, and any amount over this will be taxed. You may also consider contributing to your pension to maximize your benefits.
