Personal Allowance Taper
The gradual withdrawal of the Personal Allowance for people with adjusted net income above £100,000, reducing it by £1 for every £2 of income above that level. The allowance is fully withdrawn once income reaches £125,140, creating an effective 60% marginal tax rate on income in this £25,140 band. Pension contributions are one of the most effective ways to reduce adjusted net income and reclaim all or part of the Personal Allowance.
How it works
The taper is based on adjusted net income, not simply your salary — this typically means gross income from all sources after deducting things like pension contributions and Gift Aid donations grossed up appropriately. Someone who looks like they earn just over £100,000 on paper can sometimes fall back under the threshold once these adjustments are applied, avoiding the taper entirely.
The reason the effective marginal rate spikes to 60% in this band is that each extra £2 earned costs you £1 of Personal Allowance, and that newly-taxable £1 is itself taxed at the higher rate alongside the original £2. Pension contributions are one of the most direct ways to bring adjusted net income back below £100,000 and reclaim some or all of the allowance.
Because this band sits between the ordinary higher-rate threshold and the additional-rate threshold, it catches people who don't think of themselves as top earners but who receive a bonus, overtime, or investment income that briefly pushes them into it.
Example: the 60% trap
For every extra £100 earned between £100,000 and £125,140, £50 of Personal Allowance is withdrawn, at the rate of £1 for every £2 over the threshold.
That extra £100, plus the £50 of allowance that has now become taxable, means £150 is taxed at the 40% higher rate.
Tax on £150 at 40% is £60, so you keep only £40 of every extra £100 earned — an effective marginal rate of 60%.
Frequently asked questions
How is adjusted net income worked out?
It starts from your total gross income across all sources and then subtracts things like pension contributions and Gift Aid donations, so your salary alone doesn't always determine whether you're in the taper zone.
Can pension contributions help avoid the taper?
Yes, because contributions reduce adjusted net income, paying more into a pension can bring you back under £100,000 and restore some or all of your Personal Allowance.
Does the taper work differently in Scotland?
No, the £100,000 to £125,140 taper band and the £1-for-every-£2 withdrawal rule apply UK-wide; only the tax rates applied to the resulting taxable income differ in Scotland.
Related Terms
Personal Allowance
The amount of income you can earn in a tax year before paying income tax, currently £12,570 and frozen until April 2031 (the freeze was extended by three years at the Autumn Budget 2025).
Marginal Rate
The rate of tax paid on the next pound of income you earn, which determines the tax cost or saving of earning slightly more or less.
Pension Tax Relief
A government top-up on pension contributions that effectively returns income tax paid on the contributed amount, making pensions a highly tax-efficient saving vehicle.
Additional Rate
The highest income tax rate in England, Wales, and Northern Ireland, charged at 45% on taxable income above £125,140.
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