High earner tax · Guide

The personal allowance taper above £100,000 explained.

The personal allowance — £12,570 of tax-free income — is not available to everyone. Above £100,000, it is progressively withdrawn. Understanding the mechanics is the first step to managing the tax cost.

By Pension Bible editorial team·Last reviewed 9 April 2026·4 min read

How the taper works (£1 lost per £2 over £100k)

The personal allowance is the amount of income that can be earned tax-free each year. For 2025/26, it is £12,570. Most taxpayers receive this automatically through their PAYE tax code.

For individuals with adjusted net income above £100,000, the allowance is reduced. The reduction is £1 for every £2 of income above £100,000. This is not a cliff edge — it is a gradual withdrawal that runs across a £25,140 band.

The formula:

Reduced personal allowance = £12,570 - ((adjusted net income - £100,000) / 2)

If the result is negative, the allowance is zero.

Adjusted net income is broadly gross income minus pension contributions (grossed up for relief at source), Gift Aid donations (grossed up), and certain trading losses. It is not the same as taxable income — it is the figure HMRC uses to determine allowance entitlement before deductions are applied.

Gone entirely at £125,140

The taper eliminates the personal allowance completely at £125,140:

• At £100,000: full allowance of £12,570
• At £105,000: allowance reduced to £10,070
• At £110,000: allowance reduced to £7,570
• At £115,000: allowance reduced to £5,070
• At £120,000: allowance reduced to £2,570
• At £125,140: allowance is zero

Above £125,140, the marginal tax rate drops back to 40% (or 45% above the additional rate threshold). The 60% effective rate only applies within the taper band.

This creates a quirk: someone earning £125,000 faces a higher effective marginal rate than someone earning £200,000. The taper band is sometimes called the "tax trap" precisely because it is counterintuitive — the rate goes up and then comes back down.

Effective 60% marginal rate band

The 60% figure is not printed on any tax table. It arises from the combination of two effects on each additional pound earned within the band:

1. 40p — higher-rate income tax on the additional pound
2. 20p — the loss of 50p of personal allowance means 50p of income that was previously tax-free is now taxed at the basic rate of 20%

Total: 60p per additional pound.

For those who are also paying employee National Insurance at 2%, the true combined marginal rate reaches 62%. And for those whose income includes dividends taxed at the higher dividend rate (33.75%), the effective rate can differ further.

The sixty percent trap calculator shows the precise impact at any income level in the band.

How pension contributions restore your allowance

Pension contributions — whether via salary sacrifice or personal contribution — reduce adjusted net income. This directly reverses the taper.

For every £2 of pension contribution within the band, £1 of personal allowance is restored. That restored allowance saves 20% in basic-rate tax (since the allowance applies to the lowest tranche of income). Combined with the 40% higher-rate relief on the contribution itself, the effective relief rate is 60%.

Example: An individual earning £112,000 makes a £12,000 pension contribution.

• Adjusted net income drops to £100,000
• Personal allowance restored: (£112,000 - £100,000) / 2 = £6,000
• Tax saved on restored allowance: £6,000 x 20% = £1,200
• Tax relief on contribution: £12,000 x 40% = £4,800
• Total tax benefit: £6,000 on a £12,000 contribution — 50% effective relief

If using salary sacrifice, the employee NI saving (2% x £12,000 = £240) increases the total benefit further.

The HICBC pension calculator also models the interaction with the High Income Child Benefit Charge for those earning above £60,000 with children.

This is factual information, not financial advice. If you're unsure what's right for your situation, speak to an FCA-regulated financial adviser.