If you have been notified of a job loss, one of the most pressing financial questions you likely have is: how much tax will i pay on 60,000 redundancy?
In the UK, the taxation of termination payments is split into two parts: a tax-free threshold and a taxable balance.
Under current HMRC rules for the 2025/26 tax year, the first £30,000 of a qualifying redundancy payment is exempt from Income Tax and National Insurance, meaning you only face tax on the remaining £30,000 at your marginal rate.
How much tax will i pay on 60,000 redundancy in the UK?
For a £60,000 redundancy package, you will generally pay Income Tax only on the amount exceeding the £30,000 threshold.
If the remaining £30,000 of your settlement is treated as a termination payment, it will be added to your total annual income and taxed at 20%, 40%, or 45%.
Crucially, while Income Tax applies to this excess, you do not pay Employee National Insurance on the redundancy element itself.
The statutory foundation of termination payments
In practice, the way your employer structures the £60,000 is critical. HMRC separates earnings from compensation for loss of office.
While the redundancy element enjoys the £30,000 exemption, other parts of your final payout, such as holiday pay or bonuses, are taxed as normal salary from the first penny.
When reviewing decisions about your package, always ensure the ex gratia or redundancy portion is clearly distinguished from your final month’s wages.
What do you mean by redundancy and is your situation genuine?
Redundancy is a form of dismissal that happens when your employer no longer needs someone to do your job. It is not a reflection of your performance, but rather a change in the business’s requirements.
This might happen if the company is closing down, moving location, or restructuring to reduce costs.
Many UK firms are currently navigating extreme operational pressures; for instance, those monitoring what are current business electricity rates UK will know that rising overheads are a primary driver behind recent corporate downscaling.
Consequently, a genuine redundancy must be based on the role disappearing, not the individual.
If you are made redundant but your employer immediately hires a new person to do the exact same work under a different job title, the redundancy might not be legally valid. In such cases, the dismissal could be considered unfair, potentially leading to an employment tribunal.
What is the process of redundancy and what are your rights?
The redundancy process must follow a fair and transparent procedure. If an employer fails to follow these steps, even a genuine redundancy can be ruled an unfair dismissal.
The 7-Step Redundancy Roadmap
- Preparation and Pool: The employer identifies a pool of employees whose roles are at risk.
- Selection Criteria: Objective scores are applied to the pool (e.g., skills, experience, or attendance).
- Initial Consultation: You are informed that you are at risk and the reasons why.
- Meaningful Discussion: You have meetings to discuss the selection and explore alternatives.
- Alternative Employment: The employer must offer you any suitable alternative roles available in the company.
- Final Meeting: If no alternative is found, you are formally dismissed with notice.
- Right to Appeal: You must be given a chance to challenge the decision.
Collective Consultation: If the employer is making 20 or more people redundant at one location within a 90-day period, they must follow collective consultation rules, which involve a minimum 30 or 45-day consultation period and the notification of the Redundancy Payments Service via an HR1 form.
Which parts of a 60k package are actually tax-free?
To accurately answer how much tax will i pay on 60,000 redundancy, you must categorize every part of your final cheque.
HMRC’s Post-Employment Notice Pay (PENP) rules prevent employers from paying your notice period tax-free by calling it redundancy.
| Payment Component | Tax Treatment | National Insurance |
| Statutory Redundancy | Tax-free up to £30k | Exempt |
| Enhanced/Ex-gratia Pay | Tax-free up to £30k | Exempt |
| Pay in Lieu of Notice | Fully Taxable | Standard Deductions |
| Unused Holiday Pay | Fully Taxable | Standard Deductions |
| Bonuses/Commission | Fully Taxable | Standard Deductions |
The Notice Pay Trap: A £10,000 Case Study
To see how these rules apply in a real-world scenario, consider a £60,000 package where £10,000 is actually designated as notice pay.
In this instance, only £50,000 is classified as redundancy by HMRC. You would receive £30,000 tax-free, but the remaining £20,000 of redundancy, combined with the £10,000 notice pay, is fully taxable.
How to claim redundancy and what to do if your employer is insolvent
In a standard scenario, you do not need to claim your redundancy pay. Your employer calculates it and pays it through their payroll system, usually on your final working day or the next regular payday. You should receive a written statement showing how the £60,000 was calculated.
However, if your employer has gone bust (insolvency), the process is different:
- The Insolvency Service: You must claim your statutory redundancy pay from the government’s Redundancy Payments Service (RPS).
- The Weekly Cap: As of April 2025, the government caps weekly pay at £719. If your actual weekly pay was higher, you will only receive the capped amount from the RPS.
- Limitations: The government will not pay the enhanced portion of your 60k; they only cover statutory redundancy, unpaid wages (up to 8 weeks), and statutory notice pay.
Will the government send a notice regarding redundancy?
No, the government will not send you a notice regarding your redundancy, as this is a private contractual matter between you and your employer.
However, as you assess your financial standing, you should also consider any outstanding legal liabilities. It is vital to understand the longevity of debt orders, such as what happens if you don’t pay a CCJ after 6 years, to ensure your settlement is allocated effectively toward your most critical obligations.
Redundancy is a private matter between an employer and an employee. Your employer is legally responsible for giving you a notice period.
This notice must be in writing, and the length depends on how long you have worked there:
- At least 1 month but less than 2 years: 1 week minimum.
- 2 years to 12 years: 1 week for every year of service.
- 12 years or more: 12 weeks maximum.
What support can i receive on redundancy to find a new role?
Being made redundant can be overwhelming, but there are several support avenues available:
- Jobcentre Plus Rapid Response Service: This service helps people facing redundancy write CVs, find information on benefits, and identify training for new skills.
- Paid Time Off for Job Hunting: If you have worked for your employer for 2 years, you are entitled to a reasonable time off during your notice period to look for work or arrange training.
- Retraining Grants: In Scotland, this is handled via PACE; in Wales, it is the ReAct scheme. These can provide financial help for vocational training.
- Outplacement Support: Many £60,000 packages include professional career coaching. This is generally tax-free if the employer pays the provider directly.
How to avoid redundancy and negotiate your settlement
Redundancy is not always the only option. During the consultation phase, you have the right to suggest ways to avoid the dismissal:
- Voluntary Redundancy: Suggesting a voluntary scheme where employees can opt to leave with a package.
- Reduced Hours: Proposing a move to a part-time or job-share arrangement to save the company money.
- Redeployment: Finding a different role within the same company or a parent company.
Negotiation Tip: If you are offered a Settlement Agreement, you are often in a position to negotiate the ex-gratia amount. Since you are waiving your right to go to a tribunal, employers may be willing to increase the total package or offer a larger tax-efficient pension contribution.
How can you reduce the tax on your 60,000 redundancy?
The most effective way to protect your 60k is through Pension Salary Sacrifice. When reviewing decisions with your HR department, ask if they will pay the taxable £30,000 directly into your pension.
- Calculate the exact portion of your payout that exceeds the £30,000 tax-free limit.
- Request a Termination Contribution to your workplace or private pension scheme.
- Ensure the employer pays the amount into your pension before Income Tax is deducted.
- Verify that this keeps your Adjusted Net Income below the £100,000 threshold to protect your Personal Allowance.
- Check that you stay within your £60,000 annual pension allowance for the 2025/26 year.
- Ask the employer to add their 15% Employer National Insurance saving into your pension pot.
Moving the taxable portion of your 60k into a pension is a highly effective tax-shielding strategy.
As you bolster your retirement fund, it is also worth reviewing the broader rules surrounding inheritance, specifically what happens to your private pension when you die, to ensure your family remains protected.
This approach ensures your employer pays the amount into your pension before Income Tax is deducted.
Practical Summary
Dealing with a £60,000 redundancy requires a strategic approach to ensure you don’t lose a significant portion to the taxman. Before you sign any final settlement agreements, ensure you have addressed these four points:
- Request a written breakdown: Separate your redundancy pay from your notice and holiday pay.
- Check your year-to-date earnings: Determine if the taxable £30,000 will push you into the 40% tax bracket.
- Ask about pension sacrifice: Contact HR to see if they will pay the taxable portion into your pension to save on Income Tax.
- Verify your notice period: Ensure your employer is giving you the correct statutory or contractual notice.
FAQ
Is the 30,000 tax-free limit per year?
No, the £30,000 exemption is per employment. If you are made redundant from two different, unrelated companies, you can potentially claim the £30,000 tax-free limit twice.
Do I pay National Insurance on the taxable 30,000?
No. Employees do not pay National Insurance on any part of a genuine redundancy payment, even the amount over £30,000. However, employers must pay 15% Class 1A NI on the excess.
Can redundancy pay affect my Child Benefit?
Yes. If the taxable portion of your redundancy pushes your Adjusted Net Income over £60,000 for the year, you may have to pay the High Income Child Benefit Charge.
What is a 0T tax code on a redundancy payslip?
If you are paid after your P45 has been issued, employers often use a 0T code. This assumes you have no personal allowance, causing high tax deductions which you must later reclaim from HMRC.
Is voluntary redundancy taxed differently?
No. Whether you volunteer for redundancy or are selected, the tax rules for how much tax will i pay on 60,000 redundancy remain exactly the same, provided the reason for leaving is genuine redundancy.
Can I put the tax-free 30,000 into my pension?
You can, but there is no immediate tax benefit to doing so because that money is already tax-free. It is much more efficient to sacrifice the taxable portion instead.
Does redundancy pay count as income for Universal Credit?
Redundancy pay is usually treated as capital. If your total capital (including the payout) exceeds £16,000, you will likely be ineligible for Universal Credit until your savings drop below that level.
