Direct answer: In many common tax jurisdictions, up to £30,000 (GBP) of redundancy pay is tax-free, with amounts above that threshold typically taxable as income, though specifics can depend on the exact components of the redundancy package and local rules. If your question relates to another country (e.g., Australia or Canada), the tax-free amount and rules differ (for example, some systems specify a base amount plus per-year service credits). Always verify with your country’s current official guidance or a tax professional, because there are exceptions and changes by year. Key points to consider:
- Tax-free portion: Many systems cap the tax-free portion of genuine redundancy at a fixed amount (commonly £30,000 in the UK, though other countries use different bases). If the total redundancy payment stays at or below that cap and consists of genuine redundancy pay, it can be tax-free.
- What counts as tax-free: Genuine redundancy payments are typically the portion eligible for tax-free treatment. Other elements of a severance package (holiday pay, pay in lieu of notice, bonuses, and accrued leave) may be taxed as regular earnings or have different tax treatments.
- What exceeds the cap: Any amount above the tax-free threshold is usually subject to income tax and possibly National Insurance or equivalent social taxes, depending on the jurisdiction and the type of payment (e.g., Employment Termination Payment in some systems).
- Special cautions: Some components may be taxed differently or be exempt only up to the cap; non-cash benefits or contract-specific terms can affect the total that qualifies for tax-free treatment.
If you can share:
- Your country of residence (and whether the question is about the UK or another jurisdiction)
- The components of your redundancy package (statutory redundancy pay, any enhanced/voluntary redundancy, holiday pay, PILON, and any non-cash benefits)
I can tailor the guidance to your exact situation and provide the precise tax treatment for 2025-2026 in your country.
