In short: the first £30,000 of a genuine termination payment can usually be paid free of income tax. 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.
Statutory redundancy pay eats into the exemption
Statutory redundancy pay counts towards the £30,000, so it uses up the tax-free allowance before any additional compensation is added.
What this looks like on maximum entitlement
Statutory redundancy pay is calculated using a formula based on age, length of service and weekly pay. The maximum statutory redundancy payment is 30 weeks’ pay at the weekly pay capped rate. Reaching it takes 20 years’ service, all of it from age 41, so the employee is 61 or over. Take someone in that position earning more than the £751 weekly cap. Their statutory redundancy payment is £22,530, which leaves £7,470 of the exemption before tax starts.
If the employer offers a further £25,000 as part of an enhanced redundancy package, the qualifying total is £47,530. The first £30,000 is tax-free and £17,530 is taxable. Of the £25,000 offered, £7,470 is sheltered from tax and the rest is not. The employer pays Class 1A National Insurance at 15% on the excess, £2,629.50.
The same case in 1988: the weekly cap was £164, so 30 weeks produced £4,920. Add the same £25,000 and the total is £29,920, inside the exemption, with nothing taxable and no employer National Insurance.
Identical facts and an identical offer. Nil taxable then, £17,530 taxable now.
The point at which statutory redundancy pay itself is taxed
By the time the weekly pay cap figures increases to £1000 a week (up from £751 in 20026) the maximum statutory redundancy will consume all of the £30,000 tax free slice, meaning any further employer enhanced redundancy pay will be taxable, and subject to employer National Insurance contributions.
The cap is £751 from 6 April 2026. Based on the last years rate of increase the maximum statutory redundancy pay will consume all of the £30,000 tax free slice by the early 2030s, or applying a more modest rate of 3% a year, the middle of the decade.
Long service and older employees are affected first
The age bands in the statutory formula give 1.5 weeks’ pay for each year of service from age 41. The Government reviewed them in 2006 and kept them, on the basis that older workers take longer to find new work and accept larger pay cuts when they do.
The frozen threshold works in the opposite direction. The larger the statutory entitlement, the less exemption remains, so employees with the longest service are the ones whose settlements become taxable first.
Employers meet the same problem. Enhanced redundancy schemes are usually built as a multiple of the statutory formula, so each uprating of the cap moves enhanced terms further into the taxable band.
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 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.
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