Income

The Personal Allowance Taper: What Happens After £100,000?

#What Is the Personal Allowance?

Your personal allowance is the amount of income you can earn each year before you start paying income tax. For the 2025/26 tax year, the standard personal allowance is £12,570.

#The Personal Allowance Taper

If your income exceeds £100,000, your personal allowance is gradually reduced. For every £2 of income above £100,000, you lose £1 of your personal allowance.

#When Does It Disappear?

Your personal allowance is fully removed once your income reaches £125,140. At this point, you’re taxed on your entire income without the benefit of the tax-free allowance.

#Why It Matters

This tapering creates an effective 60% marginal tax rate on income between £100,000 and £125,140. That’s because you’re not only paying the 40% higher rate of income tax, but also losing £1 of tax-free allowance for every £2 you earn in that range.

#Example

If you earn £110,000:

  • That’s £10,000 above the threshold.
  • You lose £5,000 of your personal allowance.
  • Your tax-free allowance drops from £12,570 to £7,570.

This means more of your income is taxable, increasing your overall tax bill.

#How to Mitigate the Taper

  1. Salary Sacrifice: Contribute more to your pension to bring your taxable income below the threshold.
  2. Charitable Donations: Gift Aid donations can extend your personal allowance.
  3. Timing of Income: If you control when you receive income (bonuses, dividends), consider spreading it across tax years.

#Final Thoughts

The personal allowance taper is a stealthy tax trap for higher earners. But with smart planning—especially around pensions and salary sacrifice—you can potentially avoid or lessen the impact and keep more of your earnings.