Adjusted net income

Your adjusted net income is your total taxable income. Included in this are things like your salary, rental income, money from freelance work etc. Not included in this total are tax reliefs like losses from previous years, pensions contributions, or donations to charities. But just to make things confusing, your Personal Allowance is included. Your Personal Allowance is the first £12,570 of your income that is tax-free.

Why should I care about my adjusted net income?

When your total goes over a certain threshold, you may need to do a tax return and/or pay money back.

If it’s over £100,000

You start to lose your Personal Allowance gradually. For every £2 you earn over £100,000, you lose £1 of your Personal Allowance. Once it reaches £125,140, you have no more Personal Allowance at all.

If you’re a parent claiming Child Benefit 

If you or your (or your partner’s) total goes over £60,000, you will need to pay some of it back. And if it goes over £80,000, you need to pay all of it back! This payment is called the High Income Child Benefit Charge.

If you were born before 1938

For anyone born before 6th April 1938, their Higher Personal Allowances will be reduced when their adjusted net income goes over £27,700. Read more about the Higher Personal Allowances via HMRC online.

How does adjusted net income work in action?

Here’s an example of how it’s calculated.

• Humza is a solicitor with a total taxable income of £155,000
• He earns £125,000 from employment and £30,000 from freelancing
• He makes additional pension contributions of £3,000
• Humza’s adjusted net income is his total income minus the pension contributions: £152,000 
• This total is over £150,000
• Humza needs to do a tax return (until the 2024/25 tax year – from when PAYE high earners no longer need to file)