The £30,000 exemption, what PILON really is, why the excess lands in your worst tax year, and the pension move that can save 40–60% — the decisions that must be made before the settlement agreement is signed.
Redundancy compresses a decade of tax planning into a few weeks, decided while you have other things on your mind. The rules themselves are short; the money turns on applying them before the settlement agreement is signed, because afterwards nothing can be restructured.
Every termination package splits into three. Genuine termination pay — statutory redundancy plus enhanced or ex-gratia amounts — enjoys the £30,000 exemption, and none of it bears employee National Insurance at any level. PILON and holiday pay are ordinary salary since 2018: fully taxed and NI'd, never able to use the exemption, whatever the paperwork calls them. And the excess over £30,000 is taxable income in the year of payment — stacked on top of every pound of salary already earned that year.
That stacking is why redundancy tax feels brutal: a £70,000 package landing after eight months of a £60,000 salary puts £40,000 of excess on top of £40,000 already earned — deep into higher rate, and a bigger package crosses £100,000, where the personal-allowance taper makes each pound cost ~60%. The month of payment also usually applies an emergency tax code, over-withholding tax you reclaim later — plan cash flow on the real bill, not the first payslip. The free redundancy calculator computes it on the actual band functions.
The excess over £30,000 can often be paid by your employer directly into your pension instead of to you — an employer contribution, never touching your income. For someone in the 40–60% zone this is the best-relieved pension contribution most people ever have access to, limited by the £60,000 annual allowance plus carry-forward from three prior years. Two cautions: it must be agreed before payment, and if you then need to draw on that pension during the gap, the MPAA waits on the other side.