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How do I reduce Redundancy/Termination/Compromise agreements Tax Bill

As a rule, redundancy or termination or compromise payments of up to £30,000 are usually not taxable. Amounts above £30,000 will usually be taxable at your usual tax rate (20% if you’re a basic-rate taxpayer; 40% for higher-rate taxpayers; 50% for additional-rate taxpayers). However not all the first £30,000 redundancy/termination pay meet HMRC requirements. That is why its worthy asking a tax professional to review the termination or redundancy agreement  or compromise agreement otherwise you may even lose out on the £30k tax free. The first £30,000 of redundancy pay is not taxable providing certain criteria laid down by the taxman are met (eg. that it is not part of a retirement package). Some payments that are not ex-gratia payments may not be tax-free such as notice pay and holiday pay. Hence its worth getting a review done from someone who specialises in employment tax will be able to ask the appropriate questions and know the relevant law to advise you whether or not the settlement offer is sufficient and the types of claim you may have so that you make an informed decision.

If you are earning more than £30k, you can ask your employer to pay the excess above £30,000 into your pension fund you get tax relief on the payment into your pension fund (subject to annual and lifetime limits), as well as reducing the taxable element of your redundancy payment. But the major downside of this is that your money is locked up in a pension until you are age 55.

 If you incurred legal costs relating to redundancy. Usually the employer pays the employee’s legal costs. If your redundancy pay includes your costs, then this does not count towards the £30,000 exemption as long as it is solely in connection with termination of employment, is paid directly to the employee’s solicitor. The same applies to cost of outplacement counselling or similar training are not taxable and do not count towards the £30,000 exemption.


 If interested in us providing a free, no obligation consultation which can be in person, after normal work hours, or by phone and email if you prefer or any of the above services please contact us using the above “contact us” page and provide us the following details:

  1. Details of the redundancy/termination/compromise agreement
  2. Whether its ex-gratia or not
  3. The amount involved and your code
  4. Any other information to help us


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