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Is your income over £100,000?

20 June 2024

If you earn over £100,000 in any tax year your personal allowance is gradually reduced by £1 for every £2 of adjusted net income over £100,000 irrespective of age.

If your earnings exceed £100,000 in any tax year, your personal allowance will decrease. This rule applies irrespective of age. For every £2 of adjusted net income over £100,000, it reduces by £1. Any taxable receipt that pushes your income over £100,000 will lead to a decrease in personal tax allowances. If your adjusted net income reaches £125,140 or above, it will eliminate the allowance.

Your adjusted net income is your total taxable income. It is calculated before any personal allowances. It is then reduced by certain tax reliefs. These include trading losses, certain charitable donations, and pension contributions.

In the current tax year, your adjusted net income may range between £100,000 and £125,140. If so, the gradual withdrawal of your £12,570 tax-free personal allowance will result in an effective marginal tax rate of 60%.

If your income falls within this band, consider planning opportunities. These can help avoid this personal allowance trap by reducing your income to below £100,000. Options include making charitable donations, increasing pension contributions, and participating in certain investment schemes.

Suppose you’re a higher rate or additional rate taxpayer looking to reduce your tax bill. In that case, you could make a charitable donation in the current tax year. You can then choose to carry back the contribution to 2023-24. You must make a request to carry back the donation either before or at the same time as completing the 2023-24 self-assessment return. This must be done by 31 January 2025.

Source: HM Revenue & Customs Tue, 18 Jun 2024 00:00:00 +0100

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