Voluntary Redundancy UK - Rights, Pay, Tax and Employment Rules 2026

Understand what voluntary redundancy means, how to apply, how redundancy payments are calculated, whether you can refuse an offer and what happens to your pension, benefits and employment rights.

Voluntary redundancy is an employment arrangement in which an employer invites employees to apply to leave their jobs as part of a workforce reduction or organisational restructuring.

Unlike compulsory redundancy, where an employer selects employees for dismissal, voluntary redundancy allows employees to express an interest in leaving, usually in return for a redundancy payment.

For employees, accepting voluntary redundancy can provide an opportunity to change careers, retire early, start a business or pursue other employment opportunities. However, it also involves financial and legal considerations, particularly where future income, pensions and mortgage commitments are concerned.

Employers may offer voluntary redundancy to reduce staffing costs, restructure operations or avoid compulsory redundancies.

For professionals working in London's property, construction, facilities management and commercial sectors, understanding voluntary redundancy rights is particularly important when organisations undergo restructuring.

Fraser Bond, a UK property agency and real estate consultancy, supports homeowners, landlords, property investors and businesses with residential and commercial property services across London and the wider UK.

This guide explains how voluntary redundancy works in 2026, who qualifies, how payments are calculated, whether redundancy pay is taxable and what employees should consider before accepting an offer.

What Is Voluntary Redundancy?

Voluntary redundancy is when an employee agrees to leave their employment after an employer offers a redundancy scheme as part of a genuine workforce reduction.

An employer may invite applications from eligible employees and offer a financial package to encourage voluntary departures.

The employer does not necessarily have to accept every application.

For example, a business planning to reduce its workforce by 20 positions might invite employees to volunteer for redundancy before considering compulsory dismissals.

If sufficient suitable employees volunteer, the employer may be able to reduce the need for compulsory redundancies.

How Does Voluntary Redundancy Work?

The process typically involves the following stages:

1. The employer announces a proposed restructuring or redundancy programme.

2. Eligible employees are invited to express an interest.

3. The employer provides information about the redundancy package.

4. Employees consider whether to apply.

5. The employer reviews applications.

6. Successful applicants receive written confirmation of the terms.

7. Notice periods, outstanding holiday pay and other entitlements are addressed.

8. Employment ends on the agreed termination date.

The exact process depends on the employer's policies, contracts and applicable employment law.

Voluntary Redundancy vs Compulsory Redundancy

Both forms of redundancy involve employment ending because the employer no longer needs particular work to be carried out, or because another genuine redundancy situation exists.

The main difference is how employees are selected.

Voluntary redundancy does not mean an employee automatically gives up their employment rights.

Who Is Eligible for Voluntary Redundancy?

Eligibility depends on the employer's redundancy programme.

An employer may restrict applications to particular departments, locations or job categories where staffing reductions are required.

To qualify for statutory redundancy pay in Great Britain, an employee must generally have at least two years of continuous employment.

However, an employer can offer enhanced voluntary redundancy payments to employees with shorter service.

Employers must avoid unlawful discrimination when determining eligibility or selecting applicants.

Can You Ask for Voluntary Redundancy?

Yes.

If your employer is considering redundancies, you can ask whether voluntary redundancy is available.

It is advisable to make the request in writing and ask for information about the proposed payment package.

However, an employer is not legally required to accept your request.

For example, an employer may reject an application because the employee possesses specialist skills needed for the business.

How Much Is Voluntary Redundancy Pay in 2026?

Voluntary redundancy pay may consist of statutory redundancy pay and an additional enhanced payment offered by the employer.

Statutory Redundancy Pay

For qualifying employees, statutory redundancy pay is calculated according to age, continuous service and weekly earnings.

For redundancies taking effect on or after 6 April 2026 in England, Scotland and Wales:

• Maximum weekly pay used in the calculation: £751.

• Maximum reckonable service: 20 years.

• Maximum statutory redundancy payment: £22,530.

These limits apply to statutory redundancy pay, not necessarily to an employer's enhanced redundancy package.

Voluntary Redundancy Pay Calculation Example

Consider an employee who is 38 years old, earns £600 per week and has completed 10 years of continuous employment, all between ages 22 and 40.

Their statutory redundancy pay would be:

10 years × 1 week's pay × £600 = £6,000.

If their employer offers an additional voluntary redundancy incentive of £8,000, the package could be:

Notice pay, unpaid wages and accrued holiday pay would be calculated separately.

The precise amount depends on the employee's actual age during each year of service, pay and contractual entitlements.

Is Voluntary Redundancy Tax-Free?

Voluntary redundancy payments can qualify for favourable tax treatment.

Under HMRC rules, the first combined £30,000 of qualifying statutory and enhanced redundancy or termination compensation is generally free from Income Tax.

However, the £30,000 exemption does not apply to every payment received when employment ends.

Payments classified as post-employment notice pay can be taxable even when included within a broader severance package.

HMRC rules also distinguish between employee National Insurance and employer National Insurance liabilities.

What Is Enhanced Voluntary Redundancy?

Enhanced voluntary redundancy is where an employer offers more than the statutory minimum.

The additional amount may be calculated using:

• A multiple of weekly salary.

• Additional weeks of pay for each year of service.

• A fixed incentive payment.

• An early retirement package.

• An individually negotiated settlement.

For example, an employer might offer two weeks of salary for every completed year of employment, subject to the scheme's terms.

There is no universal enhanced redundancy formula. Employers determine their packages subject to contractual obligations and employment law.

Can an Employer Refuse Voluntary Redundancy?

Yes.

Submitting an application does not guarantee acceptance.

Employers may need to retain employees with particular qualifications, experience or operational responsibilities.

However, decisions must not involve unlawful discrimination.

For example, restricting redundancy opportunities solely because of an employee's protected characteristic may raise legal concerns.

Can You Refuse Voluntary Redundancy?

Yes. Where an employer invites volunteers, employees are generally free not to apply.

However, declining voluntary redundancy does not guarantee continued employment.

If the employer still needs to reduce its workforce, compulsory redundancy procedures may follow.

Employees should consider the possibility of compulsory redundancy when comparing available options.

Can You Change Your Mind After Accepting Voluntary Redundancy?

Possibly, but there is no general automatic right to withdraw once a binding agreement has been reached.

Whether you can reverse your decision depends on the stage of the process, the wording of the agreement and whether the employer agrees.

Before accepting, request written confirmation of the final payment, termination date and any conditions attached to the offer.

Voluntary Redundancy Notice Periods

Employees who are made redundant are generally entitled to statutory or contractual notice.

The statutory minimum notice periods in Great Britain are:

An employment contract may provide a longer notice period.

Employers may also offer payment in lieu of notice, subject to the applicable legal and contractual rules.

Voluntary Redundancy and Consultation Rights

Employers must follow applicable consultation requirements.

Where an employer proposes 20 or more qualifying redundancies at one establishment within 90 days, collective consultation obligations generally apply.

Individual consultation should also take place.

From 6 April 2026, the maximum protective award for certain failures to comply with collective consultation requirements increased to 180 days' pay per affected employee.

Voluntary redundancy schemes do not automatically remove consultation obligations.

Voluntary Redundancy and Universal Credit

Accepting voluntary redundancy does not automatically prevent someone from claiming Universal Credit.

However, entitlement depends on household income, savings, capital and other eligibility conditions.

A redundancy payment may affect Universal Credit because it can increase the amount of capital held.

For Universal Credit, capital above £6,000 can affect the award, while capital above £16,000 will generally prevent entitlement, subject to applicable exceptions.

Employees should also consider how their employment ended and whether any benefit-specific rules apply.

Voluntary Redundancy and Jobseeker's Allowance

An employee who leaves through voluntary redundancy may be able to claim New Style Jobseeker's Allowance if they satisfy the National Insurance contribution and other eligibility requirements.

The circumstances of the departure may be considered when assessing entitlement and any applicable sanctions.

It is advisable to seek benefits guidance before accepting redundancy if you expect to rely on financial support afterwards.

Voluntary Redundancy and Your Pension

Voluntary redundancy can affect workplace pensions and retirement planning.

Important considerations include whether employer pension contributions will stop, how leaving employment affects pension benefits and whether early retirement options are available.

Employees approaching retirement should compare voluntary redundancy with any separate early retirement package.

Taking early retirement may involve actuarial reductions or other pension consequences.

Voluntary Redundancy and Mortgage Payments

For homeowners, losing regular employment income can affect the ability to meet mortgage payments.

Before accepting voluntary redundancy, consider:

• The number of months your redundancy payment could cover essential expenses.

• Whether you have other household income.

• Outstanding mortgage commitments.

• The likelihood of securing new employment.

• Whether you have income protection or mortgage payment protection insurance.

• Whether your lender offers temporary support during financial difficulty.

Some mortgage protection insurance policies exclude voluntary redundancy, so checking the policy wording is essential.

Can You Get a Mortgage After Voluntary Redundancy?

Potentially, but obtaining a mortgage may be more difficult if you are no longer employed.

Mortgage lenders generally assess sustainable income, credit history, deposit and affordability.

A redundancy payment can increase available savings, but it does not necessarily replace evidence of reliable ongoing income.

Applicants who have secured new employment may need to provide an employment contract, payslips or other supporting evidence.

Voluntary Redundancy for Landlords and Property Investors

Landlords and property investors considering voluntary redundancy should assess their wider financial commitments.

Rental income may provide additional financial security, but investment properties can involve mortgage repayments, maintenance expenses, service charges and periods without tenants.

A redundancy payment may offer short-term liquidity, but it should not automatically be treated as surplus investment capital.

Property owners should consider cash flow, taxation and their long-term financial objectives before making major decisions.

Advantages of Voluntary Redundancy

Voluntary redundancy may offer several potential benefits.

These include an enhanced financial package, an opportunity to change careers, time for retraining and the possibility of retiring earlier than planned.

It can also allow employees to leave an organisation during restructuring rather than waiting for compulsory selection.

Disadvantages of Voluntary Redundancy

The principal risk is losing a reliable source of income.

Other disadvantages may include difficulty finding another job, reduced pension contributions, mortgage affordability concerns and the possibility that the redundancy payment will be insufficient to cover an extended period without employment.

Some employees may also discover that the financial package is less favourable than expected after tax and contractual deductions.

What to Check Before Accepting Voluntary Redundancy

Before signing an agreement, review the following:

1. The total redundancy payment.

2. The statutory and enhanced elements.

3. Tax treatment of each payment.

4. Notice pay and outstanding holiday entitlement.

5. The proposed termination date.

6. Pension consequences.

7. Any restrictive covenants.

8. Whether a settlement agreement is required.

9. The impact on benefits and insurance.

10. Your financial position if you remain unemployed.

Where the agreement includes a waiver of employment claims, independent legal advice