How does the Personal Allowance taper work?
The Personal Allowance is the £12,570 of income you can earn tax-free. Once your adjusted net income passes £100,000, the allowance goes down by £1 for every £2 above that. At £110,000 you have lost £5,000; at £125,140 you have lost all of it.
The trap is what this does to each extra pound. Earn £1 more and you pay 40p tax on it. That same pound also removes 50p of allowance, and that 50p is now taxed at 40% too, which is another 20p. Together: 60p.
What does a rise from £100,000 to £110,000 cost?
Take a pay rise from £100,000 to £110,000, in England, with no pension. The allowance falls to £7,570. Income tax goes up from £27,432.00 to £33,432.00, a rise of £6,000.00 on £10,000 of extra pay. With 2% National Insurance on top, the take-home pay rises by only £3,800.00.
What is the marginal tax rate at each salary?
This is how much of the next pound goes in income tax and National Insurance, in England, Wales and Northern Ireland:
| Salary | Income tax | Tax and NI | You keep |
|---|---|---|---|
| £30,000 | 20% | 28% | 72p |
| £70,000 | 40% | 42% | 58p |
| £110,000 | 60% | 62% | 38p |
| £140,000 | 45% | 47% | 53p |
The middle of the range is the worst place on the whole scale: worse than the 45% additional rate above it. In Scotland, where the advanced rate is 45%, the figure at £110,000 is 67.5% tax, or 69.5% with NI.
How can I get my Personal Allowance back?
The taper looks at adjusted net income, not your salary. Anything that lowers that figure can lift you out of the trap.
- Salary sacrifice into a pension. Sacrificing £10,000 at £110,000 brings your pay to £100,000 and gives back the full allowance. Your take-home pay falls by only £3,800, while £10,000 goes into your pension.
- Net pay pension contributions work the same way for tax, though they do not save National Insurance.
- Relief at source. A £10,000 gross contribution costs you £8,000 from take-home pay. Claim the rest through Self Assessment: at £110,000 that is £4,000.
- Gift Aid donations also count, if you give to charity anyway.
Why can I owe tax after the year ends?
Payroll does not know your total income. It uses your tax code, which normally gives the full £12,570. If HMRC does not change the code when you pass £100,000, too little tax is taken during the year and you owe the difference afterwards. On £110,000 that is about £2,000. Many people in this range need to file a Self Assessment tax return.
Can a bonus put me in the 60% trap?
You do not need a six-figure salary to fall into the trap. Income for the taper is counted over the whole tax year, so a bonus counts too. Someone on £95,000 who gets a £20,000 bonus has £115,000 for the year. Of that £20,000, they keep only £8,600: about 43p in each pound.
Many employers let you sacrifice part of a bonus into your pension before it is paid. If yours does, sacrificing the part of the bonus that lands above £100,000 turns a 62% loss into a pension contribution with full relief. Ask before the bonus is paid: once it has gone through payroll, you can only use relief at source.
What else stops at £100,000?
Some help with childcare costs also depends on adjusted net income staying at or under £100,000. If you have young children, check GOV.UK before turning down a pension top-up: the childcare help lost can be worth more than the tax.
Am I in the 60% tax trap?
Type your pay into the calculator: if you are in the trap, it says so, shows how much allowance you have lost, and how much pension would win it back. Or look at £110,000 after tax.