Reaching a six-figure income is a significant milestone, but the UK tax system becomes more complex once your earnings exceed £100,000. At this point, the Personal Allowance begins to reduce, which means earning more doesn’t always translate into as much additional take-home pay as people might expect. We look at what happens to your tax when you earn over £100,000, and how it affects other areas of your finances.
If you earn over 100k, do you lose your Personal Allowance?
Whether you’re a senior professional, director or an entrepreneur, you might find that your income fluctuates because of bonuses, dividends or other income sources. When your earnings exceed £100,000, the Personal Allowance begins to reduce. However, alongside increased tax rates, there are other allowances and benefits that also reduce or are lost.
Reduced Personal Allowance
The current Personal Allowance is £12,570, and this reduces by £1 for every £2 of adjusted net income above £100,000. If you reach £125,140, your allowance is zero, resulting in a 60% marginal income-tax rate across that range for many taxpayers.
Pension annual allowance taper
For the current tax year (2026/27), the standard annual allowance is £60,000. But it reduces for high earners when income exceeds £200,000 and adjusted income exceeds £260,000. At this threshold, the tapered allowance can fall as low as £10,000. However, you might be able to carry forward unused allowance from the previous three tax years (subject to rules).
Eligibility for Tax-Free Childcare
Parents are not eligible for Tax-Free Childcare if they expect an adjusted net income above £100,000 for the tax year. This can have a big impact on household outgoings, especially when working families are very close to the threshold.
High Income Child Benefit Charge
An adjusted net income above £60,000 can trigger the High Income Child Benefit Charge. This is 1% of Child Benefit for every £200 of income above £60,000, and if you or a partner reaches £80,000, you have to pay it all back. However, you may be able to use pension contributions and Gift Aid to reduce your net income and this charge.
How to reduce your higher rate tax liabilities
There are several ways you can try to reduce your tax bill as a higher-rate taxpayer:
Use your pension contributions
You might be able to use your personal pension contributions, including qualifying employer arrangements, to reduce your adjusted net income. This may help to restore some of your Personal Allowance and reduce your exposure to additional tax. However, you’ll need to check whether contributions are made under relief at source, net pay or salary sacrifice.
Gift Aid can provide additional relief
Higher and additional-rate taxpayers can usually claim relief on the difference between the basic rate given to a charity and their marginal tax rate. Gift Aid donations can also reduce adjusted net income, which may help with the Personal Allowance taper or Child Benefit Charge.
Use ISAs for savings and investments
Interest, dividends and capital gains outside of products with tax wrappers can also create additional tax liabilities. The ISA allowance is currently £20,000 (2026/27), and income and gains within an ISA are generally free from Income Tax and Capital Gains Tax.
Review your savings interest and dividends
As higher-rate taxpayers have a small Personal Savings Allowance and additional-rate taxpayers have none, interest can quickly become tax liable. Dividend income has its own allowance and rates, which are subject to change, so always check the current tax rules.
Plan your capital gains carefully
From 6 April 2026, higher-rate taxpayers now pay 24% on taxable gains, although special rules and reliefs can apply. Consider timing your disposals, using available losses and making use of both spouses’ allowances where appropriate. The individual Capital Gains Tax annual exempt amount is currently £3,000 (2026/27).
Check your benefits, bonuses and other income
In addition to salary, adjusted net income can include other taxable employment benefits, savings interest, dividends, rental income, investments, and other revenue sources. A common scenario is where bonuses, company car allowances and medical insurance unexpectedly push a higher-rate taxpayer over the threshold.
Voted Top 100 Financial Adviser Firms
If you are a higher-rate or additional-rate taxpayer looking for personalised tax advice, speak to a professional financial planner. Without a clear planning approach, higher income can be eroded by tax. Strong financial planning helps you to protect your wealth.
At Balance: Wealth Planning, we’ve been voted as a Top 100 Financial Adviser Firm for several years. Our financial planning team work closely with higher-rate and additional-rate taxpayers to help them stay tax-efficient, making use of all available allowances.
Are you a high earner who needs tax-planning advice? Get in touch to book a free consultation with our financial planners.
Sources:
https://www.gov.uk/income-tax-rates
https://www.gov.uk/child-benefit-tax-charge
https://www.gov.uk/government/publications/rates-and-allowances-pension-schemes/pension-schemes-rates
https://www.gov.uk/donating-to-charity/gift-aid
https://www.gov.uk/guidance/capital-gains-tax-rates-and-allowances
