Rule · ITEPA 2003 s.403

The £30,000 tax-free threshold

The £30,000 exemption has been frozen since 1988. It is not indexed and there is no current proposal to uprate it. The longer it sits at £30k, the more termination packages cross the line.

What sits in the £30k slice

The £30,000 threshold in ITEPA 2003 s.403 applies to payments and benefits brought into charge on the termination of employment (the charging scope is set by ITEPA 2003 s.401). In practice that means:

Statutory redundancy pay (always tax-free up to £30k)
Enhanced employer redundancy top-up
Ex-gratia severance
The non-PENP portion of any termination package

What sits OUTSIDE the £30k slice

Unpaid salary up to the leaving date (earnings, tax + NIC)
Contractual bonus or commission earned before termination
Accrued holiday pay (earnings, tax + NIC)
PILON, including any deemed PENP slice (earnings, tax + NIC)
Restrictive covenant payments

The PENP carve-out, in one paragraph

Before applying the £30k exemption, HMRC carves out a Post-Employment Notice Pay slice equal to the basic pay you would have earned during unworked notice. That slice is taxed as earnings whether or not your contract has a PILON clause. Only what is left can use the exemption. Rule: F(No.2)A 2017 s.5 and HMRC EIM13874.

Has the £30k figure ever moved?

No. The threshold was set at £30,000 by Finance Act 1988 (Schedule 11) and has remained at £30,000 ever since. There is no indexation mechanism. Any change requires a fresh Finance Act provision. As of 23 June 2026, no Treasury proposal has been published.