Redundancy Payment: What to Do With It in the First 30 Days
The 30-day rule. The three-bucket split on day 31. The one sheet of paper to write this month.
The payment has landed. Do not touch it for 30 days.
The worst financial decisions of a reader's life are made in the first week after the news. The 30-day rule is the rule because day 31 is the first day on which any decision about the lump is the right kind of decision. The temptation is to act on the day the money arrives. The page is the case for waiting.
You have just been told, or you have just been paid, and the number is on the statement. The instinct is to do something with it before the end of the week. Pay off the credit card. Move it into a savings account. Invest the lot. The instinct is reasonable and almost always wrong. The next 30 days are for stopping the bleeding, not for picking a new home for the money.
This page is the tactical counterpart to the 30/60/90 redundancy plan. The plan tells you what to do with the time. This page tells you what to do with the money. Read them in either order. The first 30 days, the lump sits in a separate current account and you do not touch it.
What just happened to your money
A genuine redundancy payment in the UK is made up of three parts, and they are taxed differently. Knowing which is which is the difference between a £30,000 lump and a £22,000 lump once HMRC has had its share.
| Part of the payment | How it is taxed |
|---|---|
| Statutory redundancy pay (the contractual or statutory weeks-for-years calculation) | The first £30,000 of a genuine redundancy payment is income-tax-free. Anything above £30,000 is taxed as income (PAYE through payroll, or via Self Assessment if the payment is made after the employment ends). Source: HMRC EIM13700. |
| Statutory notice pay (or payment in lieu of notice) | Taxed as ordinary income through PAYE, regardless of amount. Up to 12 weeks' pay for a long-serving employee. Source: GOV.UK. |
| Pay for accrued but untaken holiday | Taxed as ordinary income through PAYE. Take the figure from your final payslip. |
The maximum statutory redundancy pay in 2026/27 is £16,320 for a long-serving older worker (20 years' service, age 41 or over, full-time). Most readers will receive less than the cap. The right framing is to treat the payment as runway, not as a windfall. The first £30,000 of a genuine redundancy payment is income-tax-free. Anything above the £30,000 threshold, which most readers will not hit, is taxed as income. Source: GOV.UK, HMRC.
The 30-day rule
Day one is the day the payment lands. Day 30 is the first day on which the reader is allowed to make a decision about what to do with the money. The rule is not arbitrary. The first week after a redundancy is the worst week of decision-making the reader will have in their financial life. The first 30 days is for stopping the bleeding, rebuilding the weekly cash-flow, and getting the next job search under way. The lump-decision waits.
Day 0 to 30
Move the entire payment into a separate current account the day it lands. Do not invest it. Do not pay off a debt with it. The action is the wait.
Day 31 to 60
Open the three-bucket split. Runway, debts over 8% APR, the rest. The action is the split, not the investment.
Day 61 to 90
Decide what the rest bucket is for. Pension top-up if there is one. ISA wrapper if there is not. Cash if the next job is not yet secured.
The three-bucket split (day 31 onwards)
On day 31, the reader sits down with a separate current account and splits the lump into three buckets, in this order. The split is illustrative, not advice. It is the kind of split that works for a 42 year old whose monthly essential spending is £2,400, who has £3,000 on a credit card at 22% APR, and who has a workplace pension with three years of contributions already in it.
| Bucket | What goes in | Where it goes |
|---|---|---|
| 1. Runway | Three to six months of essential spending. For the 42 year old above, around £7,200 to £14,400 | Easy-access savings account or cash ISA. Money that has to be there on day one of the next month if the next job has not started |
| 2. Debts over 8% APR | Credit cards, store cards, personal loans, overdrafts. For the 42 year old above, the £3,000 credit card balance | Paid off in full on day 31. The reason is not moral. The reason is that no investment reliably returns more than 8% a year after charges, and most readers in this situation are not picking individual shares |
| 3. The rest | Whatever is left after Buckets 1 and 2 | This is the chunk that is up for investment, pension top-up, mortgage overpayment, or holding in cash while the next job lands. The decision about this chunk can wait until the next role is secured |
The 8% APR rule of thumb is the only specific number in this section that is not anchored to a primary source. It is the long-run safe-asset return (broadly, the return on a diversified portfolio of UK and global equities after inflation and charges) and a reasonable approximation for "the rate above which paying off a debt is a better deal than investing." Adjust the rule up or down depending on the reader's appetite for picking individual investments.
The pension rule
If the reader was in a workplace pension and has a Bucket 3 of more than around £5,000, the right answer for most readers is to pay the unspent redundancy into the pension wrapper. Pension contributions get tax relief at the reader's marginal rate. For a higher-rate taxpayer, that is 40% tax relief on what goes in, instantly, on top of the wrapper's tax-free growth. The full rule for the pension line is on the pay rise pension page.
The single most expensive mistake people make after redundancy is to stop the pension contribution because cash is tight. Workplace pension matching is the only money the employer has ever offered the reader that is a 50% return on day one, locked in for the next twenty-five years of compounding. The pension line is the last line to touch. If cash is tight, the right adjustment is to pause the ISA contribution, pause the mortgage overpayment, or pause the holiday budget. The pension contribution stays.
The ISA alternative
If the reader is not in a workplace pension, or is at the lifetime allowance limit, the £20,000 ISA allowance for 2026/27 is open. The ISA wrapper is the right home for the part of the lump that is meant to be working beyond the next five years. The wrapper choice (cash ISA versus stocks and shares ISA) is the same as it is for any other lump. The full comparison is on the cash ISA vs stocks and shares ISA page.
The short version: the cash ISA is the right home for the Bucket 1 runway money. The stocks and shares ISA is the right home for the Bucket 3 rest money, the part that is meant to be working in 2036. Splitting the £20,000 allowance between the two wrappers is what most readers in this situation do.
One action before 18 August
Open a separate current account today. Move the entire redundancy payment into it. Do not touch the account for 30 days. The action is the 30-day wait. The rest of the plan follows from it.
- The new account should be at a different bank from the reader's main current account, so the temptation to dip in is one extra step away.
- Set the new account to receive the redundancy payment directly, not via a transfer from the main current account. The direct receipt is the rule.
- On day 31, sit down with the statement, the four numbers on the redundancy 30/60/90 page, and split the balance into the three buckets above.
For the wider 30/60/90 plan that tells you what to do with the time, see the budgeting after redundancy page. For the pension-line rule that tells you what to do with the workplace pension contribution during the redundancy, see the pay rise pension page. For the wrapper choice on the Bucket 3 rest, see the cash ISA vs stocks and shares ISA page.
For the wider picture of whether the whole financial position is on track, see am I on track financially.
Related reading
- Budgeting after redundancy: a 30/60/90 plan - the wider plan that tells you what to do with the time, not just the money.
- Pay rise pension: what to do - the pension-line rule for career transitions, with the tax-relief maths.
- Cash ISA vs stocks and shares ISA - the wrapper choice for the Bucket 3 rest money.
- Am I on track financially? - the wider picture for the post-redundancy reader who wants to know what the rest of the financial position looks like.