A lump sum payment for a change to an employee's future contractual redundancy terms is not a payment in respect of termination of employment and therefore does not count towards the £30,000 exemption.

The taxpayer had been in the same employment from 1973 until he was made redundant in 2005. In 1996 he had received a payment from his employer to buy out his enhanced redundancy rights. Income tax was calculated on the excess over £30,000. In 2005 the taxpayer was made redundant and he sought to shelter this payment from tax by using the £30,000 tax exemption. HMRC submitted that the £30,000 tax exemption, was used to shelter the 1997 payment and so the whole 2005 redundancy payment was taxable.

The question for the Tribunal was whether the £30,000 exemption was still available or had been used up by the 1996 buy-out payment.

The Tribunal held that both the 1996 and 2005 payments should only be aggregated for the purpose of the £30,000 exemption when both payments are taxable under s148 ICTA (Income and Corporation Taxes Act) 1988 and now in similar terms, s401 ITEPA (Income Tax (Earnings and Pensions) Act) 2003. The 1996 payment was not taxable under s148 ICTA 1988 as there was no termination of employment and no change in the functions or emoluments. Consequently, the whole £30,000 exemption was available to be set off against the 2005 termination payment.

The judgment is available at http://www.tribunals.gov.uk/tax/