How is the personal allowance tapered above GBP 100,000 in 2026/27?

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The personal allowance taper is a stealth tax that creates a 60% effective marginal rate band for income between GBP 100,000 and GBP 125,140. How the taper works The personal allowance (GBP 12,570 in 2026/27) is reduced by GBP 1 for every GBP 2 of Adjusted Net Income (ANI) above GBP 100,000. At GBP 125,140 ANI, the personal allowance is entirely gone: -- ANI GBP 100,000: full GBP 12,570 personal allowance -- ANI GBP 110,000: personal allowance GBP 7,570 (reduced by GBP 5,000) -- ANI GBP 125,140: personal allowance GBP 0 The 60% effective rate explained In this band, every extra GBP 1 of income incurs: -- 40% income tax (higher rate band) -- Plus an effective additional 20% because GBP 1 of income loses GBP 0.50 of personal allowance, and that lost GBP 0.50 of formerly tax-free income is now taxed at 40% (= 0.50 x 40% = 20%) -- Total effective rate: 60% This 60% rate also applies to savings income (e.g., bank interest) and rental income that falls in this ANI range. Adjusted Net Income ANI is not just salary. It includes: -- Employment income (including benefits in kind) -- Self-employment profit -- Rental income -- Savings interest -- Dividend income ANI is reduced by: gross personal pension contributions, Gift Aid donations (grossed up). Reducing ANI with pension contributions The most effective strategy is to make personal pension contributions (or increase salary sacrifice) to bring ANI below GBP 100,000. A GBP 25,140 pension contribution by a person earning GBP 125,140 restores the full personal allowance, saving up to GBP 5,028 in tax (in addition to the normal higher-rate relief on the contribution). Child Benefit interaction HICBC also uses ANI; being in the GBP 100-125k zone can simultaneously trigger both the taper and the full HICBC repayment.

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