In short: the first £30,000 of a genuine termination payment can usually be paid free of income tax and national insurance contributions. That figure was originally set by section 74 of the Finance Act 1988 and applies to payments received on or after 6 April 1988. It has never been increased. On the Bank of England’s own inflation calculator, £30,000 in 1988 is equivalent to £86,063 in June 2026 — so the exemption has lost around 65% of its real value, and the shortfall against an inflation-linked threshold is now roughly £56,000.
The £30,000 Index
The tax-free slice of a settlement or redundancy payment, against inflation and against maximum statutory redundancy pay. Last updated 27 July 2026.
- £30,000The threshold today, unchanged since 6 April 1988
- £86,063What it would be worth if it had tracked inflation
- 65%Fall in its real value since 1988
- £22,530Maximum statutory redundancy pay, 2026/27
- 75%Share of the threshold it now consumes
- £1,000Week’s pay cap at which it consumes all of it
Show the full figures, 1988 to 2026
| Year | Threshold | Inflation-adjusted | Week’s cap | Max redundancy pay | As % of threshold |
|---|---|---|---|---|---|
| 1988 | £30,000 | £30,000 | £164 | £4,920 | 16% |
| 1989 | £30,000 | £31,573 | £172 | £5,160 | 17% |
| 1990 | £30,000 | £33,810 | £184 | £5,520 | 18% |
| 1991 | £30,000 | £36,351 | £198 | £5,940 | 20% |
| 1992 | £30,000 | £37,863 | £205 | £6,150 | 20% |
| 1993 | £30,000 | £38,831 | £205 | £6,150 | 20% |
| 1994 | £30,000 | £39,617 | £205 | £6,150 | 20% |
| 1995 | £30,000 | £40,645 | £205 | £6,150 | 20% |
| 1996 | £30,000 | £41,613 | £210 | £6,300 | 21% |
| 1997 | £30,000 | £42,399 | £210 | £6,300 | 21% |
| 1998 | £30,000 | £43,065 | £220 | £6,600 | 22% |
| 1999 | £30,000 | £43,609 | £220 | £6,600 | 22% |
| 2000 | £30,000 | £43,972 | £230 | £6,900 | 23% |
| 2001 | £30,000 | £44,516 | £240 | £7,200 | 24% |
| 2002 | £30,000 | £45,060 | £250 | £7,500 | 25% |
| 2003 | £30,000 | £45,665 | £260 | £7,800 | 26% |
| 2004 | £30,000 | £46,270 | £270 | £8,100 | 27% |
| 2005 | £30,000 | £47,238 | £280 | £8,400 | 28% |
| 2006 | £30,000 | £48,327 | £290 | £8,700 | 29% |
| 2007 | £30,000 | £49,476 | £310 | £9,300 | 31% |
| 2008 | £30,000 | £51,230 | £330 | £9,900 | 33% |
| 2009 | £30,000 | £52,379 | £350 | £10,500 | 35% |
| 2010 | £30,000 | £54,073 | £380 | £11,400 | 38% |
| 2011 | £30,000 | £56,492 | £400 | £12,000 | 40% |
| 2012 | £30,000 | £58,125 | £430 | £12,900 | 43% |
| 2013 | £30,000 | £59,577 | £450 | £13,500 | 45% |
| 2014 | £30,000 | £60,484 | £464 | £13,920 | 46% |
| 2015 | £30,000 | £60,484 | £475 | £14,250 | 48% |
| 2016 | £30,000 | £60,907 | £479 | £14,370 | 48% |
| 2017 | £30,000 | £62,540 | £489 | £14,670 | 49% |
| 2018 | £30,000 | £64,052 | £508 | £15,240 | 51% |
| 2019 | £30,000 | £65,202 | £525 | £15,750 | 52% |
| 2020 | £30,000 | £65,746 | £538 | £16,140 | 54% |
| 2021 | £30,000 | £67,500 | £544 | £16,320 | 54% |
| 2022 | £30,000 | £73,609 | £571 | £17,130 | 57% |
| 2023 | £30,000 | £78,931 | £643 | £19,290 | 64% |
| 2024 | £30,000 | £80,988 | £700 | £21,000 | 70% |
| 2025 | £30,000 | £83,710 | £719 | £21,570 | 72% |
| 2026 | £30,000 | £86,063 | £751 | £22,530 | 75% |
The threshold. Set at £30,000 by section 74(1) of the Finance Act 1988, applying to payments treated as received on or after 6 April 1988. It now sits in section 403 of the Income Tax (Earnings and Pensions) Act 2003 and has never been increased.
Inflation. The June 2026 figure of £86,062.55 is the Bank of England inflation calculator’s own output for £30,000 from 1988. The year-by-year figures use ONS series D7BT (CPI INDEX 00: ALL ITEMS 2015=100), calendar-year averages against the 1988 average of 49.6; because the published index is rounded to one decimal place these differ from the Bank of England figure by about 0.15%. CPI is used rather than RPI, which lost its National Statistic designation in 2013.
Statutory redundancy pay. The maximum is 20 years’ service at 1.5 weeks’ pay, so 30 weeks, capped at the statutory limit on a week’s pay. That limit is uprated annually under section 34 of the Employment Relations Act 1999; the figures here are taken from the successive uprating orders, from the Employment Protection (Variation of Limits) Order 1988 (SI 1988/276) to the Employment Rights (Increase of Limits) Order 2026 (SI 2026/310), and are the limit in force at 6 April in each year. Figures are for Great Britain; Northern Ireland has a separate limit. Maximum statutory redundancy pay will equal the whole £30,000 when the limit on a week’s pay reaches £1,000.
How this is updated. Revised each year on publication of the ONS calendar-year CPI average and of the annual uprating order, and immediately on any change to the threshold itself.
What the threshold actually does
Where a payment genuinely compensates you for the loss of your job, the first £30,000 is normally free of income tax and National Insurance under section 403 of the Income Tax (Earnings and Pensions) Act 2003. Only the excess is taxed. The exemption does not extend to salary, holiday pay, bonuses, pay in lieu of notice or payments for restrictive covenants, all of which are taxable in full as earnings. Our settlement agreement tax guide sets out how each element of a settlement is treated, and the settlement agreement calculator will show you what a particular offer is likely to produce.
The £30,000 is a total allowance across all qualifying payments, not a separate allowance for each one.
When the figure was set, and by what
Section 74(1) of the Finance Act 1988 substituted “£30,000” for “£25,000” in section 188(4) of the Income and Corporation Taxes Act 1988. Section 74(3) applied the change to any payment treated as income received on or after 6 April 1988. When the termination payments regime was rewritten, the exemption moved to section 403 ITEPA 2003, where it remains — the same figure, in a different statute.
Thirty-eight years have passed. The figure has not been increased once.
What it would be worth if it had kept pace
The Bank of England’s inflation calculator puts £30,000 in 1988 at £86,062.55 as at June 2026. To restore the exemption to what Parliament granted in 1988, in other words, it would need to be ~£86,000 rather than £30,000.
Put another way, the £30,000 an employee is offered today has the purchasing power of about £10,500 in 1988 money.
There is no indexation mechanism attached to the threshold, so it erodes by default and can only be changed by an Act of Parliament.
Why it matters in practice
For employees, the effect is that often a far greater proportion of every settlement is taxable than was the case when the figure was set. The headline number in an offer letter and the amount that reaches a bank account have drifted steadily further apart. In redundancy cases, where the exemption was meant to do the most work, employees are suffering through fiscal drag. Our redundancy guide covers how statutory redundancy pay interacts with the threshold.
For employers, the cost of settling above £30,000 has risen. Employer Class 1A National Insurance is payable on the excess, and that rate increased from 13.8% to 15% in April 2025. The relief has stood still while the charge on everything above it has gone up.
Why enhanced redundancy packages are increasingly taxable
Statutory redundancy pay counts towards the £30,000, so it uses up the tax-free allowance before any additional compensation is added.
As the table above shows, in 1988 the maximum statutory redundancy pay was 16% of the £30,000 tax-free slice. In 2026/27 it is 75%, leaving £7,470 of the exemption before tax starts.
Each year as the the cap on a week’s pay is uprated in line with inflation, statutory redundancy pay increases but the £30,000 cap does not change, leaving a diminishing amount of the tax-free allowance for any enhanced redundancy payment.
Who this impacts the most
In 1988 it might have been argued that the cap was at a level that only very well paid employees would pay tax on high value settlements. In 2026, the cap has in real terms reduced so much due to fiscal drag that employees on slightly more than average earnings are paying tax on severance payments. Many of the affected workers are likely to be older workers with long service receiving enhanced redundancy packages from their employers.
Example
The employer applies an enhanced redundancy formula using the statutory weeks, but using actual uncapped pay, doubled.
Facts. Employee aged 61 with 22 years’ service on a £40,000 salary. Only the most recent 20 years count, and all fall in the 41-plus band at 1.5 weeks, so 30 weeks — the statutory maximum. Weekly pay is £769.23, which is above the £751 statutory cap, so the statutory calculation is capped.
| Payment Type | Amount |
|---|---|
| Statutory minimum redundancy pay (30 × £751) | £22,530.00 |
| Enhanced redundancy payment (30 × £769.23 × 2) | £46,153.85 |
| Tax-free slice | first £30,000.00 |
| Taxable excess | £16,153.85 |
Assuming a full years salary, the employee has £10,270 of basic-rate band left after their salary, so £10,270 is taxed at 20% and £5,883.85 at 40% — £4,407.54 of income tax. The employer pays Class 1A at 15% on the excess: £2,423.08. Between them, £6,830.62.
Had the threshold tracked inflation to £86,063, the whole £46,153.85 would have been tax-free. Not reduced — nil. An enhanced redundancy package for someone on £40,000 has gone from entirely within the exemption to generating nearly £7,000 of tax.
The better the redundancy scheme, the more tax it attracts
Because the tax-free slice is fixed and the statutory redundancy element consumes an ever larger share of it, the cost of paying more than the legal minimum keeps rising. Employer National Insurance at 15% falls on everything above £30,000, so each April the same enhanced terms cost the employer more to deliver.
A frozen relief penalises good redundancy practice. Employers who have negotiated generous schemes, often with unions and often to protect long-serving staff, are the ones now meeting the largest tax bill for doing so, and the pressure over time may be towards less generous redundancy packages.
Where this ends
The maximum statutory redundancy payment is 30 weeks of capped pay, so it reaches £30,000 when the cap reaches £1,000 a week. The cap is £751 from 6 April 2026 and rose by 4.45% this year. At that rate the £1,000 point arrives in the early 2030s.
Beyond it there is no tax-free room for enhanced redundancy pay at all.
Make Redundancy Pay
The Government is implementing the Employment Rights Act 2025, one of the largest sets of employment law changes in a generation, under the banner ‘Make Work Pay’. There is a good case for looking at the £30,000 tax-free slice on redundancy and settlement payments as part of that, and for indexing it each year in line with inflation, as already happens to the week’s pay cap used to calculate statutory redundancy pay.
The mechanism already exists and would not need inventing. Section 34 of the Employment Relations Act 1999 obliges the Secretary of State to uprate the cap on a week’s pay each year in line with the September index. The same duty applied to the £30,000 would stop the relief decaying by default.
How to cite this article
The £30,000 Index, settlementagreement.co.uk https://www.settlementagreement.co.uk/30000-threshold-since-1988/
Journalists and researchers are welcome to reproduce the chart and the figures with attribution. If you need the underlying table in a different format, or a comment on what the threshold means for a particular case, get in touch.
Method and sources
The headline figure is the Bank of England inflation calculator’s own output for £30,000 from 1988, which uses ONS Consumer Prices Index data. The year-by-year table is calculated from ONS series D7BT (CPI INDEX 00: ALL ITEMS 2015=100), using calendar-year averages against the 1988 average of 49.6; because the published index is rounded to one decimal place these figures differ from the Bank of England’s by about 0.15%.
CPI is used rather than RPI. RPI lost its National Statistic designation in 2013 and its use is discouraged where CPI or CPIH is available, so an RPI-based figure, which would be higher, is not relied on here.
The week’s-pay cap for each year is taken from the successive uprating orders, running from the Employment Protection (Variation of Limits) Order 1988 to the Employment Rights (Increase of Limits) Order 2026, and is the limit in force at 6 April in each year. Figures are for Great Britain; Northern Ireland has a separate cap, £783 for 2026/27.
The worked example assumes the employee has received a full year’s salary in the tax year and that 2026/27 income tax thresholds apply. It contains no notice pay element.
The page is updated each year when the ONS publishes the calendar-year CPI average, and immediately on any change to the threshold.
Primary sources: section 74, Finance Act 1988 • section 188, ICTA 1988 • section 403, ITEPA 2003 • Bank of England inflation calculator • ONS series D7BT • section 309, ITEPA 2003 • SI 1988/276 • SI 2026/310 • Redundancy Pay, Commons Library SN/BT/960
FAQS
No. It was set at £30,000 by section 74 of the Finance Act 1988, with effect for payments received on or after 6 April 1988, and has not been increased since. Before that date the figure was £25,000.
On the Bank of England’s inflation calculator, £30,000 in 1988 is equivalent to £86,063 in June 2026. Restoring the exemption to its original value would mean raising it to roughly £86,000.
There is no indexation mechanism attached to it. Unlike some allowances, it does not rise automatically, so changing it requires legislation.
No increase has been announced. Because the figure can only be changed by a Finance Act, any change would come at a Budget.
To the whole settlement. It is a single allowance across all qualifying termination payments, not a separate allowance for each payment.
Yes. Statutory redundancy pay is not taxed, but it counts towards the £30,000, so it reduces the tax-free room available for any enhanced redundancy or additional compensation. For 2026/27 the maximum statutory redundancy payment is £22,530, which is 75% of the threshold, leaving £7,470
It is tax-free only to the extent it fits within the £30,000, after statutory redundancy pay has been counted. Because the statutory redundancy pay entitlement rises each April while the £30,000 tax-free allowance does not, a larger part of an enhanced package in excess of the £30,000 allowance becomes taxable every year, with employer Class 1A National Insurance at 15% on the excess.
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