What should I do with a redundancy payout? — UK guide

Updated March 2026 Redundancy payout Typical: £10,000–£100,000

Redundancy is financially and emotionally unlike any other scenario on this site. You've received a lump sum, but it came with a job loss — which means your income stream is disrupted, your financial position is uncertain, and decisions made now will need to last until you're earning again. The payout often feels like a lot of money until you realise it might need to cover six, twelve, or even eighteen months of living costs if the job market is difficult.

The tax treatment of redundancy is genuinely unusual. Statutory and enhanced redundancy pay up to £30,000 is completely free of income tax and National Insurance — this is one of the few UK tax breaks you receive automatically, without needing to claim or structure anything. Above £30,000, the excess is taxed as income in the year of receipt, which can significantly change your effective tax rate. Before you do anything with the money, you need to understand exactly how much of your payout falls into each category — and whether any of it came as PILON (Payment In Lieu of Notice), which is always taxable.

What should I do with spare cash?

A UK-specific guide — personalised hierarchy, allocation, and fund picks. Not regulated financial advice.

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Frequently asked questions

Is my redundancy payout taxed?
The first £30,000 of a genuine redundancy payment is completely free of income tax and National Insurance — you don't need to claim this relief, it's applied automatically. Any excess above £30,000 is taxed as income in the year you receive it, which could push you into a higher tax band depending on your other earnings. Payments that are not genuine redundancy pay — such as PILON, accrued holiday, or bonuses — are always fully taxable as normal income. Ask your employer for a written breakdown of how your settlement is categorised.
How long will my redundancy pay last and how should I budget?
Start with your monthly essential spend (rent/mortgage, bills, food, transport, minimum debt repayments) and divide your net payout by that figure. This gives you your runway in months. Then add a buffer: job searches typically take 1–3 months for mid-level roles, 3–6 months for senior roles. If your runway is less than 6 months, treat the entire payout as a living cost reserve — don't invest any of it. If it's more than 12 months of living costs, you have genuine investable capital beyond the buffer.
Can I negotiate my redundancy payout to be more tax-efficient?
Yes — if settlement negotiations are still ongoing, you can request that some of the payment goes directly into your pension as an employer contribution. An employer contribution sits outside the £30,000 tax-free cap, doesn't count as your income, and is also exempt from employer NI. This is increasingly common in settlement agreements for senior employees. Your employer may agree because their NI saving on a pension contribution matches what they'd pay via payroll. Get this structured in writing in the settlement agreement before signing.
Does my redundancy pay affect my mortgage application for the next job?
Yes — lenders typically want to see 3 months of payslips for a standard mortgage application. A period of unemployment resets this clock; you'll generally need to wait 3 months after starting your new role before applying. Redundancy pay itself doesn't help — it's not recurring income, so lenders don't count it toward affordability. If you were planning to remortgage or buy property soon, factor in at least a 3–6 month delay to the mortgage timeline after restarting employment.
How much did you receive?
£10,000£20,000£30,000£50,000
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InheritanceWork bonusISA deadlineHouse sale proceedsPension lump sum

General educational information only. Not FCA-regulated financial advice. We are not authorised by the FCA. Consult an FCA-authorised adviser for personal recommendations.