Redundancy payments and tax: what is exempt and what is not

The three exemptions

• Basic exemption: 10,160 euro plus 765 euro per complete year of service.
• Increased exemption: the basic exemption plus up to 10,000 euro, if you have not claimed it in the last ten years and are not in a pension scheme or give up the right to a tax-free pension lump sum. Where you have a pension lump sum entitlement the 10,000 is reduced by its value.
• SCSB (Standard Capital Superannuation Benefit): average annual pay for the last three years, times years of service, divided by 15, less any tax-free pension lump sum received or receivable.

Worked example

Twelve complete years of service, no pension scheme, ex gratia payment of 30,000 euro. Basic exemption: 10,160 + (765 x 12) = 19,340. Increased exemption adds 10,000, giving 29,340 exempt. Taxable: 660 euro, taxed as pay in the year it is received.

What is always taxable

• Pay in lieu of notice that is written into your contract.
• Holiday pay and arrears of wages.
• Any part of the lump sum above the exemptions, which is taxed at your marginal rate through payroll, with top-slicing no longer available.