Key takeaways:
- According to Statista, there were around 126,000 redundancies in the United Kingdom in the first quarter of 2026.
- Voluntary redundancy allows eligible employees to choose whether to accept a redundancy offer.
- Compulsory redundancy involves an employer selecting roles to be removed.
- You may receive redundancy pay, including statutory and enhanced elements.
- The first £30,000 of redundancy pay is usually tax-free.
- Reviewing your finances early can help you plan your next steps more confidently.
What is redundancy?
Redundancy occurs when your employer ends your role because it is no longer needed, rather than due to your performance or conduct.
This typically occurs when a business undergoes changes such as restructuring or cost reductions, resulting in a reduced need for certain roles or departments.
For individuals in senior or specialist positions, redundancy may be accompanied by a more substantial, structured package, making it an important financial consideration as well as an employment change.
Christo Nation, Associate Director of Cooper Associates Wealth Management, explains:
“Voluntary redundancy can provide a significant financial opportunity, but it also brings important decisions. Understanding how your payment will be taxed and how it could support your wider financial goals is key to making the most of this transition.”
What are the different types of redundancy?
Typically, redundancy will fall into one of two categories; voluntary or compulsory. Understanding the difference between the two can help you make sense of how decisions are made, as well as what a potential package might look like.
- Voluntary redundancy is where employees apply to leave their position during a redundancy programme. This is often accompanied by an agreed financial package, although employers will typically only accept a certain number of applications depending on their needs.
- Compulsory redundancy is where an employer selects employees for redundancy. This process is expected to follow a fair and transparent approach, including consultation and the use of objective selection criteria.
How much could you receive from a redundancy payment?
The amount you may receive from a redundancy payment can vary significantly depending on your employer, your contract, the type of redundancy and the structure of your package.
In instances of compulsory redundancy, eligible employees will receive statutory redundancy pay. This provides a legal minimum amount based on factors such as:
- Your age.
- Length of service (minimum two years and maximum 20 years).
- Weekly pay (£751 cap).
For the 2026/27 tax year, the maximum amount of statutory redundancy pay you may be able to receive is capped at £22,530.
However, in many cases, particularly for voluntary redundancy or more senior roles, employers may offer an enhanced redundancy package that goes beyond the statutory minimum.
Enhanced voluntary redundancy packages may include:
- A multiple of your salary.
- Additional payments based on length of service.
- Incentive payments for leaving voluntarily.
- Other financial or non-financial benefits agreed as part of the package.
This means redundancy payments can vary widely between individuals, ranging from statutory minimums to more substantial, tailored packages.
Christo explains further:
“Voluntary redundancy can result in a significant lump sum at a time when many people are already considering their long-term financial future. The decisions made at this point can have a lasting impact on retirement plans, tax efficiency and estate planning.”
For larger or more complex redundancy payments, understanding how the package is structured is particularly important, as this may influence how it is treated from both a financial and tax perspective.
Is my redundancy payment taxable?
The tax treatment depends on what makes up your payment and whether it qualifies as a redundancy payment under HMRC rules. Therefore, while some elements of a voluntary redundancy package may be tax free, others may be taxable.
Christo explains:
“One of the first things to understand is what you’ll actually receive after tax. Many people are surprised to learn that the tax treatment of redundancy payments can vary depending on the size and structure of the package.”
What part of a redundancy payment is tax free?
The first £30,000 of qualifying redundancy payments is generally tax-free.
This can apply to both statutory and enhanced redundancy payments where they meet HMRCs qualifying criteria. However, any qualifying redundancy payment above £30,000 is usually subject to Income Tax.
Any taxable redundancy payment is added to your other taxable income for the tax year. This could result in some of the payment being taxed at a higher rate if it pushes your total earnings into a higher income tax band.
For the 2026/27 tax year, the Income Tax rates in the UK are as follows:
| Tax band | Taxable income | Income Tax rate |
| Personal allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 to £50,270 | 20% |
| Higher rate | £50,271 to £125,140 | 40% |
| Additional rate | Above £125,140 | 45% |
For example:
Sarah earns a £50,000 annual salary and receives a qualifying voluntary redundancy payment of £150,000.
- The first £30,000 of the qualifying redundancy payment is generally tax-free.
- The remaining £120,000 is treated as taxable income and added to Sarah’s annual salary (£50,000), making her effective total salary for that year £170,000.
As Sarah has already used almost all of the basic rate band through her salary, most of the taxable redundancy payment would fall into the higher rate (40%) and additional rate (45%) tax bands.
This means the amount Sarah receives into her bank account could be significantly lower than the headline figure offered by her employer.
What should I do with my redundancy payment
Receiving a redundancy payment is more than just receiving compensation for leaving your role. It can be an opportunity to review your finances, strengthen your long-term plans, and make informed decisions about your future.
- Assess your wider financial position.
Before deciding what to do with your redundancy payment, it is important to understand your complete financial picture.
This may include reviewing:
- Existing savings and investments.
- Pension arrangements.
- Property and mortgage commitments.
- Future income requirements.
- Financial plans with your partner or family.
For many higher earners, the redundancy payment will not exist in isolation. It may form part of a much wider financial picture involving existing assets, pensions and long-term goals.
- Review your pension opportunities.
A redundancy payment may provide an opportunity to review your pension arrangements.
Depending on your personal circumstances and retirement goals, you may consider:
- Increasing pension contributions.
- Reviewing existing pension investments.
- Understanding how pensions fit into your retirement plans.
- Paying a portion of your redundancy package into your pension to offset tax and boost your provision.
Pensions can form an important part of long-term financial planning, particularly for those approaching retirement. However, pension decisions should always consider your wider circumstances and future goals.
- Consider your retirement plans.
For some people, voluntary redundancy can bring forward retirement plans or create an opportunity to reconsider how and when you would like to stop working.
You may want to review:
- Whether you can afford to retire earlier than expected.
- How much income you may need in retirement.
- When you can access your pension savings.
- Whether your existing pension arrangements are sufficient.
A large redundancy payment can provide flexibility, but it should be considered alongside your wider retirement strategy.
- Explore investing opportunities.
For some people, investing part of their redundancy payment may help support longer-term financial objectives.
Investing may be considered when:
- You have sufficient emergency savings.
- You do not need immediate access to the money.
- Your investment timeframe matches your goals.
- You understand the risks involved with investing.
It is important to note that the right investment approach will depend on your personal circumstances, financial objectives and attitude towards risk. Investments carry risk as you may get back less than you initially invested and returns are not guaranteed.
Christo states:
“Before investing a redundancy payment, it’s worth stepping back and reviewing your financial foundations. Clearing expensive debt, maximising tax allowances and assessing retirement provision’s should all form part of the conversation.”
- Begin or review your Inheritance Tax plans.
Receiving a substantial lump sum may also be a good opportunity to review your estate planning as a larger cash balance could increase the overall value of your estate and lead to an unexpected or higher Inheritance Tax liability.
Christo explains:
“A redundancy payment can increase the value of your estate overnight. The additional money can add flexibility to your retirement plans, but it important to consider the inheritance tax implications and potential planning opportunities.”
This may include reviewing:
- Gifting plans.
- Charitable giving.
- Trust investments.
- Funding Whole of Life policies.
Inheritance tax planning can be complex, particularly for individuals with significant assets. This makes professional advice essential to help you understand the options available and manage your liability as tax efficiently as possible.
As Christo explains:
“The right course of action will depend entirely on your individual circumstances, which is why taking advice before making any major decisions can be invaluable.”
Why speaking with a financial adviser after redundancy is beneficial
“For many people, redundancy may be one of the few occasions in life where they receive a substantial lump sum. Taking the time to consider all the available options can make a significant difference to their future financial security.”
A financial adviser can help you understand how your redundancy payment fits into your wider financial position and help you consider areas such as:
- Understanding your payment after tax.
- Reviewing pensions and retirement plans.
- Considering investment options.
- Reviewing Inheritance Tax planning.
- Creating a long-term financial plan.
For many people, redundancy is a rare financial event that creates an opportunity to step back, review their position and make informed decisions about their future.
How can Cooper Associates Wealth Management help?
If you have received a redundancy package, our team of independent financial advisers can help you understand your options and make informed decisions about your financial future.
Whether you are considering retirement, reviewing your investments, planning for Inheritance Tax or simply want to understand how your redundancy payment fits into your wider finances, our advisers can help you create a plan tailored to your personal circumstances and goals.
To speak with one of our expert advisers get in touch today and book no-obligation conversation. We are here to help.
