Between £100,000 and £125,140 you lose £1 of personal allowance for every £2 earned — an effective 62% marginal rate. Here's exactly what that costs and what to do about it.
Above £100,000 of adjusted net income, your £12,570 personal allowance is withdrawn at £1 for every £2 of income. That withdrawal is itself taxed at 40%, stacking on top of the 40% higher rate and 2% NI — a real marginal rate of 62% on every pound between £100,000 and £125,140.
| Salary | Take-home / year | Take-home / month |
|---|---|---|
| £100,000 | £68,557 | £5,713 |
| £110,000 | £72,357 | £6,030 |
| £125,140 | £77,482 | £6,457 |
A £10,000 pay rise from £100k to £110k leaves you just £3,800 better off — you keep 38p of each extra pound.
Crossing £100,000 adjusted net income also ends your eligibility for Tax-Free Childcare and the 15/30 free childcare hours — for a family with two children in nursery this cliff-edge can be worth £10,000+ a year, making the true marginal rate at £100,001 effectively infinite. Check what you'd lose with our Tax-Free Childcare Calculator.
Pension contributions reduce adjusted net income pound-for-pound. Earn £110,000 and contribute £10,000 gross into your pension: your adjusted net income drops to £100,000, the full personal allowance returns, and the contribution effectively costs you only ~38p per pound. Salary sacrifice is better still, saving the 2% NI too. Model it with our Pension Tax Relief Calculator and check the limits with the Annual Allowance Calculator.
Gift Aid donations extend your basic-rate band and reduce adjusted net income. Salary-sacrificed electric cars (see our EV Salary Sacrifice Calculator) and cycle-to-work reduce taxable pay. Deferring a bonus across tax years can keep you under the threshold in both. What doesn't work: dividend income and rental profits still count towards adjusted net income.
Between £100,000 and £125,140, the personal allowance taper creates an effective 60% income tax rate (62% including NI) — the highest marginal rate in the UK system, higher than the 45% additional rate above it.
At £125,140 adjusted net income the allowance is fully withdrawn. From that point your marginal rate actually falls back to 47% (45% tax + 2% NI).
Yes — gross pension contributions reduce adjusted net income directly. Contributing enough to bring income back to £100,000 restores the full allowance and can deliver over 60% effective tax relief.
It has been frozen at £100,000 since 2010. Fiscal drag pulls more people in every year — over 1.5 million taxpayers now sit in the taper zone.