The £100k Personal Allowance Taper Explained

Between £100,000 and £125,140 of adjusted net income, the Personal Allowance is withdrawn by £1 for every £2 of additional income. This creates an effective 60% Income Tax marginal rate in England, Wales and Northern Ireland before National Insurance or other deductions. This guide explains the calculation, related childcare thresholds, and legitimate ways pension contributions can change adjusted net income.

Understanding the Personal Allowance

To understand the 60% trap, start with the Personal Allowance. For the 2026/27 tax year, the standard UK Personal Allowance is £12,570. For most people with adjusted net income no higher than £100,000, this is the amount available before Income Tax starts. Income above the allowance is taxed progressively, with the higher-rate threshold at £50,270 for someone receiving the standard allowance.

The Taper: How the Trap is Set

The trap springs into action the moment your "Adjusted Net Income" crosses the £100,000 mark. The government decided that high earners shouldn't benefit from the Personal Allowance. So, for every £2 you earn above £100,000, you lose £1 of your Personal Allowance. This is known as the Personal Allowance taper. It is a gradual reduction, but its impact on your take-home pay is brutal. Because you are losing £1 of tax-free allowance for every £2 of extra income, the amount of your income that is subject to tax increases at a faster rate than your actual salary increases.

The Mathematics of 60%

Let's look at a concrete example to see the mathematics in action. Imagine you currently earn exactly £100,000. You are offered a £10,000 pay rise or a £10,000 bonus. Your new gross salary is £110,000.

• Step 1: The 40% Tax. You immediately pay the 40% Higher Rate tax on that extra £10,000. That is £4,000 gone directly to HMRC.
• Step 2: The Lost Allowance. Because your income has increased by £10,000, you lose £5,000 of your Personal Allowance (the £1 for every £2 rule).
• Step 3: Taxing the Lost Allowance. That £5,000 that used to be tax-free is now suddenly taxable at your highest marginal rate, which is 40%. 40% of £5,000 is an additional £2,000 in tax.

Add the £4,000 (from Step 1) and the £2,000 (from Step 3) together, and your total Income Tax bill on that £10,000 pay rise is £6,000. You have just paid 60% tax. Out of your £10,000 raise, you only see £4,000 in your bank account. And that doesn't even factor in National Insurance!

The £125,140 Dead Zone

This tapering continues until the £12,570 Personal Allowance is fully withdrawn at adjusted net income of £125,140. Across £100,000 to £125,140, the effective marginal Income Tax rate is 60% for England, Wales and Northern Ireland before National Insurance. Above £125,140, additional income is taxed at the 45% additional rate, so the marginal Income Tax rate falls from 60% to 45% rather than to 40%.

How the £100,000 threshold can affect childcare support

For working parents, a £100,000 adjusted-net-income threshold can also affect eligibility for Tax-Free Childcare and funded childcare. Unlike the Personal Allowance taper, this can operate as a cliff edge. The effect depends on family circumstances, childcare use and the rules applying in the relevant UK nation, so check the current official eligibility guidance before making a decision.

How pension contributions can change adjusted net income

The taper is based on adjusted net income rather than headline gross salary. Eligible gross pension contributions and Gift Aid can reduce adjusted net income, but the treatment and suitability depend on the contribution method and your circumstances.

1. Pension Contributions (Salary Sacrifice)

Eligible pension contributions can reduce adjusted net income and may restore some Personal Allowance. The result depends on the pension method, contribution limits, scheme rules and personal circumstances; consider regulated advice before making a material decision.

2. Charitable Donations (Gift Aid)

If you don't want to lock the money away in a pension, donating to charity through Gift Aid also reduces your Adjusted Net Income. While you are giving the money away, the tax efficiency makes the actual cost to you significantly lower than the amount the charity receives.