How To Protect Your Personal Allowance If You Earn Over £100,000

Most UK taxpayers can earn £12,570 each year before paying any income tax.

This is known as your Personal Allowance.

However, once your adjusted net income exceeds £100,000, your Personal

Allowance is reduced by £1 for every £2 of income above this threshold.

For example:

• Income of £105,000 means you lose £2,500 of your Personal Allowance.
• Income of £110,000 means you lose £5,000.
• Income of £125,140 means you’ve lost the entire £12,570 allowance.

That means more of your income becomes taxable.

Step 1: Work out your ‘adjusted net income’

One of the biggest misconceptions is that the £100,000 threshold refers to your salary.

It doesn’t.

HMRC uses your ‘adjusted net income’.

In simple terms, this is your total taxable income, and includes any salary, bonuses, rental income, dividends and any other taxable income you might have, minus things such as:

• Pension contributions
• Gift Aid donations
• Certain allowable trading losses

Before making any decisions, calculate your adjusted net income for the tax year. You may find you’re much closer to the £100,000 threshold than you realised.

Step 2: Increase your pension contributions

For most people, increasing pension contributions is the simplest and most tax-efficient way to protect their Personal Allowance.

If your adjusted net income is £108,000, contributing an additional £8,000 to your pension (subject to your available annual allowance and tax relief limits) can reduce your adjusted net income back to £100,000.

This achieves three things:

• Restores your full Personal Allowance.
• Helps avoid the effective 60% tax band.
• Increases your retirement savings.

The main downside is that pension money is generally inaccessible until you reach the normal minimum pension age (currently 55 for most people with this rising to 57 from 2028 for many individuals).

Step 3: Consider salary sacrifice

If your employer offers salary sacrifice, this can be another highly effective strategy.

Rather than receiving all of your salary as pay, you agree to give up part of it in exchange for an employer benefit—most commonly additional pension contributions.

Because your contractual salary is reduced, your adjusted net income falls too.

Some employers also pass on part or all of their National Insurance savings, making salary sacrifice even more attractive.

Step 4: Make Gift Aid donations

If you regularly donate to charity, make sure you claim Gift Aid where you’re eligible.

Gift Aid donations reduce your adjusted net income for Personal Allowance purposes.

While you shouldn’t donate solely to save tax, charitable giving can have the added benefit of bringing your income back below the £100,000 threshold.

Step 5: Consider when you receive income

Timing can sometimes make a significant difference.

If you’re expecting a large bonus, commission payment or dividend, it may be possible to delay receiving some of that income until the following tax year.

Equally, if you’re a company director, you may have flexibility over the timing and mix of salary, dividends and pension contributions.

This won’t be possible for everyone, but where you do have control over when income is received, it can help preserve your Personal Allowance.

Step 6: Don’t forget childcare

For parents, earning just over £100,000 can have consequences beyond income tax.

If your adjusted net income exceeds £100,000, you may lose eligibility for:

• Tax-Free Childcare.
• 30 hours of funded childcare (where applicable).

Combined with the gradual withdrawal of your Personal Allowance, the financial impact can be substantial.

Reducing your adjusted net income below £100,000 could restore both your Personal Allowance and valuable childcare support.

• Assuming your salary is all that matters

Rental income, bonuses, investment income and other taxable income can all increase your adjusted net income.

• Waiting until the end of the tax year

Many strategies are easier to implement before the tax year ends.

Review your expected income regularly, especially if you receive bonuses or variable pay.

• Forgetting about bonuses

A one-off bonus can unexpectedly push your adjusted net income above £100,000.

Planning ahead gives you more options.

• Ignoring pension annual allowance limits

While increasing pension contributions is often the best strategy, there are limits on how much can receive tax relief. Make sure you understand your available annual allowance before making large contributions.