Last updated: 16 October 2026
Are retirement gifts taxable?
There is no specific tax exemption for a gift given to an employee when they retire. A gift from an employer is usually treated as earnings, so it is taxable unless an exemption applies. The good news is that the long service award exemption often covers a retirement gift for a long-serving employee, as long as the conditions are met.
The long service award exemption
A non-cash award for long service is tax-free if:
- the employee has at least 20 years’ service with the employer or group
- the cost is no more than £50 for each year of service (so £1,500 for 30 years)
- the employee has not had a similar award in the previous 10 years
- the award is not cash or a cash voucher
Typical examples are a watch, a clock, jewellery, a painting or shares in the employer company. If the cost goes over the limit, only the excess is taxable.
Cash and vouchers
Cash gifts and vouchers that can be swapped for cash are always taxable and go through payroll with tax and Class 1 National Insurance. Store vouchers are treated as non-cash for some purposes but still need care, because they cannot be covered by the trivial benefits rule if they can be converted to cash.
Other options
| Option | Limit | Notes |
| Long service award | £50 per year of service, 20+ years | Non-cash only |
| Trivial benefit | £50 per gift | Not cash, not a reward for work; £300 a year cap for directors of close companies |
| PAYE Settlement Agreement | No set limit | Employer pays the tax and Class 1B NIC |
| Retirement party | £150 a head per year | Must be open to staff generally |
Worked example
Margaret retires after 25 years. Her employer gives her a watch costing £1,400 and pays for a leaving meal for her team.
- Long service limit: 25 x £50 = £1,250
- Taxable excess: £150, which the employer can put in a PSA or report as a benefit
- The meal is covered by the annual function exemption if the cost per head stays within £150 across the year’s events
Is the gift deductible for the company?
Yes. Gifts to employees are a staff cost and are normally allowable for corporation tax. Employer Class 1A or Class 1B National Insurance, at 15% in 2026/27, is due on any taxable part.
Payments on retirement
A lump sum paid to someone because they are retiring can be treated as a pension-type benefit rather than a gift, and it is taxable in full. Keep gifts modest, non-cash and clearly linked to long service.
Records to keep
Keep a note of each employee’s start date, the cost of every award and the date it was given. This proves the 20-year service and 10-year gap conditions if HMRC asks. If the employee joined through a takeover, service with the previous employer can count when the business was transferred as a going concern, so keep the transfer records too.
Frequently asked questions
Can I give a retiring employee extra holiday pay tax-free?
No. Pay for untaken holiday is earnings and is taxable.
Does a gift from colleagues count?
No. A collection from colleagues is a personal gift and is not taxable.
Can directors get a long service award?
Yes, if they meet the same conditions.
Do I need to report a tax-free award?
No, exempt awards do not go on a P11D.
Related: long service awards, cash gifts from an employer and staff gifts like flowers.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with employee gifts and benefits. See our payroll services service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 16 October 2026. It is not personal advice, so speak to an accountant about your own situation.
