How much redundancy pay will I actually take home?
Usually less than the headline figure on your offer letter. A £40,000 "redundancy package" might include PILON, holiday pay and wages that are fully taxed, while only part of the severance may qualify for the £30,000 tax-free termination payment exemption. National Insurance applies to taxable earnings but not to qualifying termination payments within the exemption.
Why the headline number misleads
Employers and solicitors often quote one total. HMRC looks at each payment type separately. What you take home depends on:
- How much is taxable earnings (PILON, holiday, wages, bonus)
- How much qualifies for the £30,000 exemption (statutory redundancy, enhanced redundancy, genuine compensation)
- Your taxable income so far this tax year (marginal rate)
- Whether you are a Scottish taxpayer (different income tax bands)
Payment types and typical treatment
| Component | Tax | Employee NI | UC treatment (if claiming) |
|---|---|---|---|
| Statutory redundancy | Up to £30k combined exemption | No on exempt amount | Capital |
| Enhanced redundancy | Up to £30k combined exemption | No on exempt amount | Capital |
| Settlement compensation | Up to £30k combined exemption | No on exempt amount | Capital |
| PILON | Always taxable | Yes | Earnings |
| Holiday pay | Always taxable | Yes | Earnings |
| Unpaid wages / bonus | Always taxable | Yes | Earnings |
Worked example
Package: £15,000 statutory redundancy + £8,000 enhanced + £5,000 PILON + £2,000 holiday = £30,000 gross.
Taxable earnings: £7,000 (PILON + holiday) — full PAYE and NI apply.
Qualifying termination: £23,000 — all within £30,000 exemption, so no income tax or employee NI on that portion.
Take-home: Roughly £23,000 + net of £7,000 after tax/NI — not £30,000.
If qualifying payments exceeded £30,000 combined, the excess would be taxed at your marginal rate (no employee NI on the excess). PENP rules can also reclassify part of a severance payment as taxable earnings if you did not work your notice.
What this means for you
- Ask for a line-by-line breakdown before signing — not just a total.
- Enter each component separately in a calculator; do not assume "total minus £30,000".
- Remember take-home is separate from UC capital — net qualifying payments count towards savings, not gross.
- Check your P45/P60 and payslip when payment arrives; payroll treatment can differ from estimates.
Caveats
This is an estimate based on standard UK rules. Your employer's payroll, contract terms, and HMRC classification (including PENP) can change outcomes. This is not tax or legal advice.
Related guides
Calculate your estimated take-home with the Redundancy Take Home calculator
Sources:GOV.UK — termination payments;MoneyHelper — redundancy pay. Last reviewed September 2026.