How to Calculate Personal Allowance Over £100k (2025/26 UK) | Boring Math

How to Calculate Personal Allowance Over £100k

Start with the standard personal allowance of £12,570. Then work out how far your adjusted net income is above £100,000. For every £2 above the threshold, you lose £1 of allowance.

• £100,000 income: full allowance of £12,570
• £110,000 income: £10,000 over the threshold, so allowance falls by £5,000 to £7,570
• £120,000 income: £20,000 over the threshold, so allowance falls by £10,000 to £2,570
• £125,140 income: allowance fully removed

That is the whole calculation. The trap appears because the lost allowance makes part of your income taxable again at 40%, on top of the usual higher-rate tax.

How the Personal Allowance Taper Works

In the 2025/26 tax year, everyone in the UK gets a personal allowance of £12,570. This is the amount you can earn before paying any income tax. Above that, you pay 20% (basic rate), then 40% (higher rate above £50,270), and 45% (additional rate above £125,140).

Here is the part most people miss: once your income exceeds £100,000, that personal allowance starts shrinking. HMRC reduces it by £1 for every £2 of income above £100,000. So:

• At £100,000: full personal allowance of £12,570
• At £106,000: personal allowance reduced to £9,570
• At £112,570: personal allowance halved to £6,285
• At £125,140: personal allowance gone entirely (£0)

Once the allowance is fully withdrawn at £125,140, you continue at the standard 40% and 45% rates. The trap only exists in that £25,140 corridor.

Why the Effective Rate Is 60%, Not 40%

You might expect income above £100,000 to be taxed at 40% (the higher rate). But each additional pound earned in this zone has a double cost:

1. You pay 40% income tax on the pound earned.
2. You lose 50p of personal allowance (£1 allowance lost for every £2 earned). That 50p was previously sheltered from tax, so it now gets taxed at 40%: an extra 20p.

Total tax per additional pound: 40p + 20p = 60p. That is a 60% effective marginal rate. Add 2% employee National Insurance contributions (which still apply in this range) and the real rate is 62%.

The Trap in Numbers: £100k vs £125,140

Let's compare two salaries at the edges of the trap to show the full damage:

Earning £25,140 more gross adds only £9,554 net. That is an effective rate of 62% on every pound in the trap zone. Most people would rather keep £25,140 in a pension, where it grows tax-free, than hand 62% to HMRC.

How to Escape the 100k Tax Trap

The goal is to reduce your adjusted net income below £100,000. Adjusted net income is your gross income minus certain deductions. The main tools are:

1. Salary sacrifice into a pension

This is the cleanest solution. Your employer reduces your gross salary before tax and NIC are calculated. A £15,000 salary sacrifice on a £115,000 salary brings adjusted net income to £100,000, restoring the full personal allowance. You save:

• £6,000 in income tax (40% on £15,000)
• £300 in employee NIC (2% on £15,000)
• £2,514 from restored personal allowance (taxed at 40%)
• Total saving: approximately £8,814

That £15,000 goes into your pension instead of HMRC. Use the UK Salary Sacrifice Calculator to model the exact saving for your salary, or check the UK 100k Tax Trap Calculator to see your current exposure.

2. Personal pension contributions (SIPP)

If your employer does not offer salary sacrifice, you can pay into a personal pension or SIPP. The contribution reduces your adjusted net income on your self-assessment return. You claim 40% higher-rate relief on top of the 20% basic rate relief added automatically. The NIC saving is not available here. Only salary sacrifice gets that, but the income tax saving is identical.

3. Gift Aid donations

Charitable donations made under Gift Aid also reduce adjusted net income. If you donate £1,000 to a registered charity and claim Gift Aid, your adjusted net income falls by £1,250 (the grossed-up amount). This is less efficient than a pension because you're actually giving the money away, but it can help if you're only slightly above £100,000 and have planned charitable giving anyway.

4. Employer pension contributions

Direct employer contributions (not salary sacrifice, but extra employer payments) are excluded from your taxable income. If your employer is willing to increase their pension contribution in lieu of salary, this achieves the same effect as salary sacrifice. This is worth asking about during pay negotiations.

Salary Sacrifice: The Maths at Different Salary Levels

The saving from salary sacrifice is largest in the taper zone. Here are the approximate savings for different salaries:

These are approximate figures. Use the Salary Sacrifice Calculator for precise numbers including your student loan, pension scheme type, and employer contribution. For pension planning beyond the immediate tax saving, the UK Pension Calculator shows how this affects your retirement pot.

What the Annual Pension Allowance Means for This Strategy

You can contribute up to £60,000 per year to pensions (or 100% of your salary if lower). For most people in the £100k-£125k range, sacrificing £5,000-£25,000 stays comfortably within this limit. The £60,000 annual allowance includes employer contributions, so check your employer is not already contributing heavily before planning a large sacrifice.

If you have unused allowance from previous years (you can carry forward up to 3 years), you may be able to make larger one-off contributions. This is particularly useful if your salary has just crossed £100,000 for the first time.

The lifetime allowance was abolished in April 2024, removing the old cap on total pension savings. You are no longer penalised for building a large pension pot, which makes the salary sacrifice strategy even more attractive for long-term savers.

Common Mistakes People Make

• Assuming their employer offers salary sacrifice when they don't. Check your payslip or ask HR. If your employer runs a "salary exchange" or "SMART pension" scheme, salary sacrifice is available. If not, you'll need to use personal pension contributions instead.
• Forgetting bonus payments. A £15,000 bonus can push you from £90,000 to £105,000 unexpectedly. Ask your employer whether bonus sacrifice is possible. Many schemes allow it, and the saving on a £5,000 bonus sacrifice at this level is around £3,100.
• Not filing self-assessment. If you earn over £100,000, you must register for self-assessment and file a tax return each year. HMRC does not always contact you; the responsibility is yours.
• Thinking the trap disappears after £125,140. Above £125,140, you lose the personal allowance entirely but the rate reverts to standard 40% and 45% rates. There is no trap above that level, but you're also paying more tax overall.
• Ignoring child benefit implications. If you or your partner receives child benefit and either of you earns over £60,000, the High Income Child Benefit Charge applies. This is a separate taper and stacks on top of the personal allowance taper. The combined effect above £60,000 can be significant for families. This is a reason to consider salary sacrifice even before reaching £100,000.