£40,000 Redundancy After Tax on £35,000 Salary
Tax-free: £30,000 · Effective redundancy tax rate: 5.0%
Redundancy tax breakdown 2025-26
| Component | Amount | Tax treatment |
|---|---|---|
| Total redundancy payment | £40,000 | — |
| Tax-free portion | £30,000 | 0% tax & NI |
| Taxable portion (above £30,000) | £10,000 | Added to salary income |
| Income Tax on taxable portion | −£2,000 | No NI applies |
| Net redundancy take-home | £38,000 | Effective rate: 5.0% |
Personalised insights on £35,000
Statutory Redundancy Pay (SRP) by years of service
| Years of service | SRP entitlement (2025-26) | % of your £30k tax-free |
|---|---|---|
| 5 years (age 22–40) | £3,215 | 11% |
| 10 years (age 22–40) | £6,430 | 21% |
| 15 years (age 41+) | £14,468 | 48% |
| 20 years (age 41+ — max) | £19,290 | 64% |
SRP uses a weekly cap of £643/week in 2025-26 (£643/week applies at your salary). Age multipliers: 0.5 week/yr under-22, 1 week/yr 22–40, 1.5 weeks/yr 41+. Maximum statutory payment: £19,290 (20 yrs × 1.5 × £643).
Pension impact: pre vs post redundancy
| Pre-redundancy employer pension (5% of £35,000) | £1,750/year |
| Estimated pension lost during 6 months unemployment | −£875 |
| Redundancy-to-pension sacrifice saving (£10,000 above £30k) | +£2,000 |
Tactic: with your employer's agreement, you can redirect the taxable portion of redundancy directly into your pension (ex-gratia sacrifice). This eliminates Income Tax on the taxable surplus and boosts your retirement pot. Check the £60,000 annual allowance and any unused carry-forward.
Tax on your redundancy
The taxable portion (£10,000) is taxed at 20% basic rate Income Tax. No NI applies to redundancy payments.
How much redundancy do you keep on £35,000?
On a £35,000 salary, a £40,000 redundancy payment leaves you with £38,000 after tax. The tax-free portion is £30,000 (the first £30,000 is always tax-free). The remaining £10,000 is added to your salary income and taxed at your marginal Income Tax rate — giving a tax charge of £2,000. No National Insurance applies to redundancy payments.
Unlike salary, redundancy payments above £30,000 are only subject to Income Tax — not National Insurance. This means a £50,000 redundancy payment is more tax-efficient than an equivalent salary increase.
The £30,000 redundancy tax-free threshold
HMRC has maintained a £30,000 tax-free threshold for redundancy payments since 1988. This covers both Statutory Redundancy Pay (SRP) and any enhanced redundancy your employer pays. The threshold applies per redundancy event, so if you are made redundant more than once in a career, each event has its own £30,000 allowance.
Statutory Redundancy Pay is capped at £643 per week for 2025-26, over a maximum of 20 years' service and using an age-based multiplier (½ week for under 22s, 1 week for 22–40, 1½ weeks for 41+). The maximum statutory payment is £19,290 — well within the tax-free £30,000 limit for most employees.
How long will £38,000 last on £35,000?
A net redundancy of £38,000 covers approximately 15.9 months of your normal £35,000 take-home pay (£28,720/year). That buffer is critical if you're between roles: during unemployment you'll lose employer pension contributions (roughly £1,750/year at 5%), so 6 months out of work alone wipes out £875 in pension growth. If your redundancy is above £30,000, consider redirecting the taxable surplus directly into your pension via employer sacrifice — at your salary band this saves approximately £2,000 in Income Tax. Also claim NI credits during any unemployment to protect your state pension record.
Frequently asked questions
How much of my £40,000 redundancy is tax-free?
The first £30,000 of your redundancy is tax-free. On a £40,000 payment, that means £30,000 is tax-free and £10,000 is taxable as income.
How much tax will I pay on my £40,000 redundancy payment?
Tax on your redundancy is £2,000. This is Income Tax only on the £10,000 above the £30,000 threshold. No National Insurance is due on redundancy payments. Your net redundancy take-home is £38,000.
Is redundancy pay subject to National Insurance?
No. Redundancy payments are exempt from National Insurance contributions — both employee and employer NI. Only Income Tax applies to any amount above the £30,000 tax-free threshold. This makes redundancy more tax-efficient than equivalent salary.
What is the £30,000 redundancy tax-free allowance?
HMRC allows the first £30,000 of any redundancy payment to be paid completely free of tax. This applies to both Statutory Redundancy Pay (SRP) and any enhanced redundancy your employer offers. The threshold has been £30,000 since 1988 and applies per redundancy event, not per tax year.
Is enhanced redundancy tax-free the same as statutory redundancy?
Yes. The £30,000 tax-free threshold covers the total redundancy payment — statutory and enhanced combined. So if you receive £10,000 statutory plus £25,000 enhanced = £35,000 total, only £5,000 above the £30,000 threshold is taxable.
How much will I actually receive from a £40,000 redundancy on a £35,000 salary?
On a £35,000 salary, a £40,000 redundancy payment produces a take-home of £38,000. Tax-free portion: £30,000. Taxable portion: £10,000. Income Tax on the taxable amount: £2,000. Effective tax rate on the full redundancy: 5.0%.