Rule · ITEPA 2003 s.401

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 exemption in ITEPA 2003 s.401 applies to payments and benefits received in connection with the termination of employment. 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.