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What are the tax implications of earning over £100K?

  • 3 min read
  • Last updated 26 Mar 2024

One of the major tax implications for high earners is that you start losing your Personal Allowance over £100K— and the dreaded (but unofficial) 60% tax rate. As soon as you start earning over £100,000, you gradually lose your £12,570 income tax Personal Allowance, pound by pound.  

Also important to remember is that you may have to do a tax return. HMRC will check what’s known as your Adjusted net income when you do this, to work out whether you owe money or are due a refund based on your high-earner salary.

From April 2023, the threshold for submitting a self assessment increased to £150,000 per tax year. And from April 2024, the threshold was abolished, meaning high earners no longer need to file a tax return.

But, if you’re earning £100k+, you should still make sure to contact HMRC to check you’re on the correct tax code!

How does higher bracket tax work?  

To understand the 60% tax rate, you should first understand the way that income is taxed in general in the UK. 

Income Tax is currently charged at the following rates, although this is subject to change depending on the Chancellor’s vision at the time of each Autumn Budget.

IncomeTax rate
Up to £12,5700%Personal allowance
£12,571 to £50,27020%Basic rate
£50,271 to £125,14040%Higher rate
over £125,14145%Additional rate

You’ll notice in the above table that the 60% tax isn’t mentioned. That’s because it isn’t an official tax band recognised by HMRC. It’s instead a calculation of how much you end up paying when your Personal Allowance is deducted. By losing the allowance, it adds an extra 20% of tax onto the income you earn between £100,000 and £125,140. 

For every £2 that you earn over £100,000, you lose £1 of your Personal Allowance. You also won’t be eligible for 45% tax until you earn a higher income over £125,141.

Sorry, explain that again?

It’s confusing. We know. 

Put simply, here’s an example:

  • I earn £100,000 and get a £1,000 pay rise
  • The extra £1,000 is taxed at my normal 40% Higher Rate
  • But for every £2 I earn over £100,000, I also lose £1 of my tax-free Personal Allowance
  • At this 2:1 rate, I lose £500 of my Personal Allowance
  • This now also needs to be taxed at my 40% Higher Rate
  • 40% of £500 is an extra £200 tax
  •  I am now taxed £600 (£400 + £200) on the extra £1,000 I earn
  • £600 is 60% of the extra £1000 I earn

Now, if you’re a visual learner, we’ve obviously got you. This image will help break down Income Tax and what it means for higher salaries.

Income tax rates UK

Alternatives to the tax implications of earning over £100k

Whatever tax you’re liable to pay, you will have to pay by law. That said, there are ways to be more tax efficient. 

Here’s a selection of things that you can do to improve your tax efficiency, avoiding the 60% tax trap:

  1. Instead of your pay rise, take non-cash employee benefits such as a company car, private health insurance etc. through a salary sacrifice scheme
  2. Increase your pension contributions.
  3. Donate to charity and claim the Gift Aid tax relief
  4. Look for tax efficient investments.

For more information, take a look at this article about ways that you can be tax efficient when you earn over £100,000.

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