Lost Your Job? Up to ₦50 Million in Compensation May Now Be Tax Exempt

Under Nigeria’s new tax framework, some of these payments now have a much higher tax exemption threshold.

The Nigeria Tax Act 2025 provides that compensation or damages of up to ₦50 million for certain wrongs or injuries suffered by an individual, including compensation for loss of office or employment, are not chargeable gains. Where the qualifying compensation exceeds ₦50 million, only the excess is treated as a chargeable gain.

This is a significant change from the previous ₦10 million threshold.

What changed under the new tax rules?

The new rules took effect from January 1, 2026, as part of Nigeria’s new tax framework.

For qualifying compensation connected to loss of employment, the threshold has increased from ₦10 million to ₦50 million.

There is also a separate exemption covering redundancy lump sum payments and other compensation of a capital nature for loss of employment, subject to the provisions of the Nigeria Tax Act.

The important point is that the exemption applies to qualifying compensation. It should not be interpreted to mean that every payment an employee receives when leaving a job is automatically tax free.

What counts as compensation for loss of employment?

Employment can end in different ways, and the payments that follow can have different tax treatment.

An employee could receive a redundancy payment, compensation for loss of office, unpaid salary, accrued benefits, bonuses or other amounts connected to their employment.

These payments should not all be treated as one category simply because they were received when the person left their job.

For example, the ₦50 million exemption for qualifying compensation does not mean an employee can take ordinary employment income, label it “compensation” and automatically make it tax exempt.

The nature of the payment and the provision under which it qualifies matter.

What if the compensation is more than ₦50 million?

The exemption does not disappear simply because the payment exceeds ₦50 million.

Under Section 50 of the Nigeria Tax Act, where qualifying compensation exceeds ₦50 million, only the amount above ₦50 million constitutes a chargeable gain.

For example, if an individual receives ₦60 million in qualifying compensation, the first ₦50 million falls within the exemption and the remaining ₦10 million is the excess that may be subject to tax under the applicable rules.

That distinction is important when calculating the actual tax position.

Does every redundancy payment qualify?

This is where employees need to pay attention to the wording of the law.

The Act specifically refers to redundancy lump sum payments and other compensation of a capital nature for loss of employment in its exemption provisions.

So, an employee should not assume that every amount paid alongside a redundancy package has the same treatment.

If part of the payment represents salary, wages or another form of employment income, that amount needs to be considered under the rules that apply to employment income.

The documents provided by the employer can therefore matter when determining what each payment represents.

Who handles the tax where tax is due?

Where compensation for loss of office or employment gives rise to tax under Section 50, the person making the payment is required to deduct and remit the tax due to the relevant tax authority at the point of payment.

That means the employee should not simply look at the amount deposited into their account and assume that the entire payment was either taxable or tax free.

It is worth checking the breakdown of the payment and any deductions made.

What should you keep if you receive a redundancy payment?

Keep the documents that show why the payment was made and how the amount was calculated.

This can include your termination or redundancy letter, settlement agreement, payment statement, employer correspondence and any document showing the breakdown between compensation, salary, benefits or other payments.

Good records make it easier to establish what the payment represents if questions arise later.

They also help you understand whether the amount received falls within an exemption or whether part of it may be taxable.

The ₦50 million threshold does not mean every exit payment is tax free

The new threshold gives qualifying compensation for loss of employment significantly more room under the tax rules.

But the actual tax treatment still depends on the nature of the payment.

If you receive money after losing your job, the useful question is not simply whether it was paid because your employment ended. You need to know what the payment represents, which provision applies to it and whether any amount falls outside the relevant exemption.

For employees facing redundancy or negotiating an employment settlement, understanding that distinction can make a significant difference to the amount they ultimately keep.

LessaTax helps freelancers, self employed professionals and small business owners organise their financial records and understand their tax position.