Once your income passes £100,000, you start losing your personal allowance, creating an effective 60 per cent tax rate on part of your income. We show you exactly where you stand and use pensions and planning to claw the allowance back.
Earning Over £100k
When your adjusted net income goes above £100,000, your tax-free personal allowance is reduced by £1 for every £2 you earn, disappearing entirely by £125,140. Because you lose allowance as you earn more, the income between £100,000 and £125,140 is effectively taxed at around 60 per cent, the notorious 60 per cent trap. Many high earners do not realise how much of that band they can reclaim.
Your Tax Help Accountants works out your adjusted net income, shows you exactly how much allowance you are losing, and models the moves that reduce it, most powerfully pension contributions and salary sacrifice, which reduce adjusted net income pound for pound and can restore your allowance while building your retirement fund. We also make sure your return is right if you have dividends, benefits or other income pushing you over.
A pension contribution in the £100,000 to £125,140 band can attract effective tax relief of around 60 per cent, because it both saves higher-rate tax and restores lost personal allowance. For many high earners it is the single most efficient thing they can do.
The Detail That Matters
Once your income passes £100,000, you lose £1 of personal allowance for every £2 you earn, creating an effective 60% tax rate on income between £100,000 and £125,140. It is one of the harshest bands in the system, and one of the most avoidable with planning.
On earnings in this band you pay 40% tax, and you also lose 50p of tax-free personal allowance per extra £1, which is itself then taxed. The combined effect is that a £1,000 pay rise or bonus in this band leaves you with just £400, an effective marginal rate of 60%.
Above £100,000 you also lose access to tax-free childcare and the 15 or 30 free childcare hours. For a family using full-time nursery, that can be worth thousands, so the real marginal rate for parents in this band can exceed 100% on part of the income.
A personal or salary-sacrifice pension contribution reduces your adjusted net income pound for pound. Bringing income from £110,000 back to £100,000 with a £10,000 gross contribution restores £5,000 of personal allowance and can cost you as little as £4,000 net, extraordinary value.
Gift Aid donations also reduce adjusted net income, so charitable giving is unusually tax-efficient here. Salary-sacrifice arrangements for pension, cycle-to-work or electric cars reduce the income that counts, and also save National Insurance.
The trap catches people who take a bonus or pay rise without planning, then find they kept only 40p in the pound and lost their childcare support too. A contribution made before the tax year ends usually fixes it.
Key Figures
How We Help
We calculate your adjusted net income precisely and show how much allowance you are losing, and exactly where you sit in the 60 per cent band.
Pension contributions and salary sacrifice reduce your adjusted net income pound for pound, clawing back your personal allowance, we model the optimal amount for your situation.
Dividends, benefits in kind, bonuses and other income can tip you over £100,000. We pull it all together, claim your reliefs, and make sure your Self Assessment is accurate.
All the forms, calculations and correspondence handled on your behalf, so you never have to decode HMRC's rules or sit on hold.
A clear fixed fee quoted after a free call, your position explained in plain English, and never a surprise bill.
We act quickly, and where earlier years are involved we put those right too, reclaiming refunds or minimising penalties.
The 60 per cent trap catches thousands of people who have no idea they are in it, quietly losing personal allowance and paying far more tax than they need to on the £100,000 to £125,140 band. A short review and the right pension planning can restore the allowance and save thousands, but only if it is done before the tax year ends.
Recent Client Outcome
A client earning £118,000 received a £12,000 bonus and was dismayed to keep only about £4,800 of it, having also lost their tax-free childcare.
What we did. We arranged a £18,000 gross pension contribution (partly funded by the bonus and partly by carry-forward of unused allowance), which brought their adjusted net income back to £100,000.
The outcome. This restored their full £12,570 personal allowance and reinstated tax-free childcare. The contribution attracted around 60% effective relief, so the £18,000 in their pension cost them roughly £7,200 net.
They turned a heavily taxed bonus into pension savings at exceptional value, and recovered childcare support worth several thousand pounds a year.
Why People Come to Us
Questions Answered
Free fifteen-minute call. Fixed quote within twenty-four hours. Your return filed, every expense claimed, your bill explained, and salon VAT, payroll and accounts handled if you own a salon. Same accountant, start to finish.
Or email info@yourtaxhelp.co.uk, we typically respond within two business hours.
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