Why the Personal Allowance starts to vanish above £100,000
Above £100,000 of adjusted net income, the £12,570 tax-free allowance is withdrawn at £1 for every £2, creating an effective 60% rate. Here is how the band works, what reduces adjusted net income and what else the £100,000 line affects.
At a glance
- The £12,570 Personal Allowance shrinks by £1 for every £2 of adjusted net income above £100,000, and is gone at £125,140.
- In England, Wales and Northern Ireland that creates a band where each extra £1,000 of income costs £600 in income tax: an effective rate of 60%.
- Some deductions, such as grossed-up Gift Aid donations, reduce adjusted net income. The allowance and the basic rate limit are frozen until 5 April 2031.
The letter from HR looked like good news. After a promotion, Tom’s salary was going from £98,000 to £108,000, a rise of £10,000 a year. When he ran the numbers on the first new payslip, the extra take-home pay was far smaller than he expected. Nothing had gone wrong with payroll. He had simply crossed £100,000, the point at which the tax-free Personal Allowance starts to be withdrawn.
It is not shown as a separate rate on most tax summaries, yet it changes what a pay rise, bonus or extra rental income is actually worth.
How the allowance is withdrawn
For the 2026/27 tax year, which runs from 6 April 2026 to 5 April 2027, the standard Personal Allowance is £12,570. GOV.UK explains that it goes down by £1 for every £2 that adjusted net income is above £100,000. At £125,140 the allowance has reached zero, because the £25,140 of income above the limit has removed the whole £12,570.
The tax rates themselves do not change at £100,000. Someone in England, Wales or Northern Ireland pays 40% on income between £50,271 and £125,140 and 45% above that. What changes is that each £2 of extra income also turns £1 of previously tax-free income into income taxed at 40%.
Where the 60% figure comes from
Take an extra £1,000 of income inside the band. It is taxed at 40%, which is £400. It also removes £500 of Personal Allowance, and that £500 is now taxed at 40% too, adding £200. The total is £600 of tax on £1,000 of income, an effective marginal rate of 60%.
| Income moves from | Personal Allowance after the rise | Extra income tax | Effective rate |
|---|---|---|---|
| £60,000 to £61,000 | £12,570 | £400 | 40% |
| £100,000 to £101,000 | £12,070 | £600 | 60% |
| £120,000 to £121,000 | £2,070 | £600 | 60% |
| £130,000 to £131,000 | £0 | £450 | 45% |
Assumes all income is non-savings income such as salary or self-employed profit, the standard Personal Allowance, no deductions from adjusted net income and no Scottish taxpayer status. Employees also pay National Insurance of 2% on earnings above £967 a week in 2026/27, so on salary in this band the combined rate is 62%. In Scotland the band falls within the 45% advanced rate, so the effective income tax rate there is 67.5%. Illustrative only.
Across the whole band the arithmetic is consistent. On these assumptions, income tax on £100,000 is £27,432; on £125,140 it is £42,516. The difference, £15,084, is exactly 60% of the £25,140 between them.
The tax rates themselves do not change at £100,000. What changes is that each £2 of extra income also turns £1 of previously tax-free income into taxable income.
What counts as adjusted net income
The test is not salary alone. Adjusted net income starts with total taxable income before any allowances, so it includes earnings, self-employed profits, rental profits, savings interest and dividends. Certain reliefs are then taken off. GOV.UK’s worked steps include trading losses and the grossed-up value of Gift Aid donations, which is £1.25 for every £1 given. Some other deductions also reduce adjusted net income; the full list is in GOV.UK’s adjusted net income guidance.
Because savings interest and dividends count, someone whose salary is below £100,000 can still be inside the band. Our guides to when savings interest starts to be taxed and when dividends need to be reported cover those parts of the picture.
How Gift Aid interacts with the band
A higher-rate taxpayer who gives through Gift Aid can already claim back the difference between the tax they paid on the donation and the basic rate tax the charity reclaims, through Self Assessment or by asking HMRC to adjust their tax code. Inside the £100,000 to £125,140 band, the grossed-up donation also lowers adjusted net income, which restores some of the lost allowance. The mechanics are covered in how Gift Aid can lower a higher-rate taxpayer’s own bill.
Worked example · illustrative only
A donation inside the band
Daniel has £108,000 of salary in 2026/27 and lives in England. He gives £2,000 to charity under Gift Aid, which the charity grosses up to £2,500. He has no other deductions. The figures are invented.
- Adjusted net income (£108,000 − £2,500)
- £105,500
- Allowance restored (half of £2,500, at 40%)
- £500 less tax
- Higher-rate relief on the gross gift (20% of £2,500)
- £500 less tax
- Charity receives £2,500; reduction in Daniel’s tax
- £1,000
The donation costs Daniel £2,000 up front and his tax bill falls by £1,000. The result depends on income staying inside the band and on the relief being claimed.
Why more people reach the band each year
The £100,000 limit is the same in 2026/27 as it was in 2025/26, and the Personal Allowance has been £12,570 for several years. At the Autumn Budget 2025 the government confirmed that the Personal Allowance and the basic rate limit will be maintained at their current levels until 5 April 2031, extending a freeze that had been due to end in April 2028. As pay rises while thresholds stand still, more incomes drift into the band.
Knock-on effects for couples and families
- Marriage Allowance. The partner receiving the £1,260 transfer must pay tax at no more than the basic rate (in Scotland, the starter, basic or intermediate rate). Anyone with income above £100,000 is a higher-rate taxpayer, so they cannot receive it. Our main guide explains which couples can use the Marriage Allowance.
- Tax-Free Childcare. The government adds £2 for every £8 paid in, up to £2,000 per child a year (£4,000 for a disabled child). GOV.UK says a family is not eligible if either partner expects adjusted net income over £100,000 in the current tax year. The same limit applies to the funded childcare hours for working parents in England. Unlike the taper, this is a cliff edge rather than a gradual reduction.
- Child Benefit. Adjusted net income above £60,000 also triggers the High Income Child Benefit Charge, so a household in this band may be affected by both.
Who this matters for, and what to check
- Anyone expecting a pay rise, bonus or one-off income that could take adjusted net income past £100,000 in a tax year.
- People whose salary is below £100,000 but who have rental profits, savings interest or dividends on top.
- Higher-rate taxpayers who give through Gift Aid but have never claimed the extra relief.
- Parents using Tax-Free Childcare or funded hours, who need to reconfirm eligibility and expected income every three months.
The HMRC app and the online personal tax account show the Personal Allowance HMRC is using for the year. Checking is free, and nothing here needs a paid intermediary.
Worth knowing before the next pay review
Between £100,000 and £125,140, the Personal Allowance is withdrawn at £1 for every £2, which produces an effective 60% income tax rate in England, Wales and Northern Ireland and 67.5% in Scotland. The threshold is frozen, adjusted net income includes more than salary, and the same £100,000 figure decides access to Tax-Free Childcare.
Sources
- GOV.UK, Income Tax rates and Personal Allowances: income over £100,000. The £1 for £2 reduction, zero allowance at £125,140, 2026/27 rates
- GOV.UK, Adjusted net income. How adjusted net income is worked out, the Gift Aid grossing-up and the £60,000 Child Benefit test
- HMRC, Maintaining the Personal Allowance and the basic rate limit until 5 April 2031. The freeze confirmed at the Autumn Budget 2025
- Best Start in Life (GOV.UK), Eligibility for Tax-Free Childcare. The £100,000 adjusted net income limit for either partner
General information
This article is private sponsored information from N&V Accounting OÜ, the publisher of Mo-saique (company details). It is not published by, and is not affiliated with, HM Revenue & Customs (HMRC) or GOV.UK. It is general information, not personal tax or financial advice, and it does not recommend any product or provider.
Figures are official published rates for the year stated or clearly labelled illustrations; what any one person pays or can claim depends on their own income and circumstances. This site takes no applications and charges no fees. Never give your National Insurance number, bank details or Government Gateway or GOV.UK One Login details to a website in response to an article. For your own position, use GOV.UK or contact HMRC or your council directly.
The Tuesday Tide, every Tuesday
One page each Tuesday: what has changed in tax allowances, rates and household deadlines, with the official source for each. Nothing to buy.
Free. We email a confirmation link first, and you can unsubscribe at any time.
