What Happens If You Earn Over £100,000?
Earning more than £100,000 is a significant milestone.
But from a tax perspective, it is also where things start to become more complicated.
Once your adjusted net income exceeds £100,000, your Personal Allowance begins to reduce. For the 2026/27 tax year, the standard Personal Allowance remains £12,570, but it is withdrawn by £1 for every £2 of adjusted net income above £100,000. It disappears completely once adjusted net income reaches £125,140.
This means someone earning between £100,000 and £125,140 can face a much higher effective tax rate on that part of their income than they might expect.
Understanding how the rules work can make a significant difference when planning salary, dividends, bonuses, pensions and other income.
Why does your Personal Allowance disappear?
Most taxpayers receive a tax-free Personal Allowance.
For 2026/27, this is £12,570.
However, once adjusted net income exceeds £100,000, the allowance starts being withdrawn.
For every £2 of income above £100,000, £1 of Personal Allowance is lost.
For example:
If your adjusted net income is £110,000, you are £10,000 above the threshold.
Your Personal Allowance is therefore reduced by £5,000.
Instead of receiving a £12,570 allowance, you would receive £7,570.
At £125,140 or above, the allowance has been completely removed.
Why do people talk about a 60% tax rate?
For taxpayers in England, Wales and Northern Ireland, higher-rate Income Tax is normally charged at 40%.
However, between £100,000 and £125,140, every extra £2 earned also removes £1 of tax-free Personal Allowance.
That effectively means part of your existing income becomes taxable as well.
This produces an effective marginal Income Tax rate of 60% across this band for someone subject to the main UK rates.
It is not an official 60% tax band.
It is the combined effect of:
- Paying 40% tax on additional income
- Losing Personal Allowance
- Paying 40% tax on the income that has become taxable because the allowance disappeared
This is why tax planning becomes particularly important around the £100,000 threshold.
What is adjusted net income?
The £100,000 test is based on adjusted net income, not simply the salary shown on your payslip.
Adjusted net income can include taxable income such as:
- Employment income
- Self-employed profits
- Rental income
- Dividends
- Savings interest
- Pension income
- Certain taxable benefits
Certain deductions can then reduce the figure.
HMRC states that adjustments can include qualifying pension contributions and grossed-up Gift Aid donations.
This means two people with the same headline income can have different adjusted net income depending on their circumstances.
Pension contributions can become particularly important
Pension planning can be especially relevant for people whose adjusted net income is around £100,000.
Qualifying pension contributions can potentially reduce adjusted net income.
For example, someone with income of £110,000 who makes an appropriate pension contribution may be able to reduce their adjusted net income towards £100,000.
Depending on the individual circumstances, this could:
- Restore some Personal Allowance
- Reduce Income Tax
- Increase long-term pension savings
However, pension annual allowances and other rules must also be considered.
A contribution should not be made solely because of one tax threshold without reviewing the wider financial position.
Gift Aid can also affect adjusted net income
Qualifying charitable donations made through Gift Aid can also reduce adjusted net income when calculating the Personal Allowance position.
For someone already making charitable donations, this is worth including when calculating whether their adjusted net income exceeds £100,000.
Keep records of relevant donations so they can be included correctly in your tax calculations.
Bonuses can push you over the threshold unexpectedly
You do not need to have a £100,000 basic salary to be affected.
Your total taxable income might include:
- £90,000 salary
- £8,000 bonus
- £5,000 dividends
- £2,000 interest
That could push total income above £100,000.
This is why looking only at salary can be misleading.
People approaching the threshold should consider all taxable income before making year-end decisions.
Company directors need to consider dividends too
For limited company directors, adjusted net income may include both salary and dividends.
That means a director could have a relatively modest salary but still exceed £100,000 once dividends and other income are added.
Dividend tax rates also changed for 2026/27. The basic dividend rate is 10.75%, the higher rate is 35.75%, and the additional rate remains 39.35%.
For directors, remuneration planning should therefore consider:
- Salary
- Dividends
- Pension contributions
- Other personal income
- Company profits
- Cashflow
- Personal Allowance withdrawal
Merranti’s accountancy services can help directors review these areas together rather than looking at each payment in isolation.
Rental income can also push you over £100,000
Landlords can also be affected.
For example, someone earning £85,000 from employment may assume they are comfortably below the threshold.
But if they also have:
- £15,000 taxable property income
- £3,000 savings interest
- £2,000 dividends
their adjusted net income may exceed £100,000.
This is why personal tax planning needs to consider all income sources.
Savings and investment income matter
Interest and dividends can become increasingly important once income is close to major tax thresholds.
A year of unusually high:
- Bank interest
- Investment dividends
- Investment distributions
could unexpectedly push adjusted net income above £100,000.
This is especially relevant where people hold significant cash savings outside tax-efficient wrappers.
The threshold can affect more than Income Tax
Adjusted net income is also used for other parts of the tax system.
For example, HMRC uses adjusted net income when considering the High Income Child Benefit Charge, although that charge has its own separate threshold.
The wider point is that changes in income can have effects beyond the headline Income Tax rate.
Tax planning should therefore look at the complete household position where relevant.
Do not wait until after the tax year
Some planning opportunities are much easier to use before 5 April.
Once the tax year has ended, your options may be more limited.
Before year-end, review:
- Expected salary
- Bonuses
- Dividends
- Rental income
- Interest
- Pension contributions
- Gift Aid donations
- Other taxable income
This gives you a clearer estimate of adjusted net income before the tax year closes.
Keep good records
People with multiple sources of income should retain clear records of:
- Payslips
- P60s
- P11Ds
- Dividend vouchers
- Bank interest
- Investment statements
- Rental income
- Pension contributions
- Gift Aid donations
Good records make tax planning and Self Assessment much easier.
Frequently Asked Questions
What happens when you earn over £100,000?
Your Personal Allowance begins to reduce by £1 for every £2 of adjusted net income above £100,000.
When do you lose your full Personal Allowance?
For 2026/27, the £12,570 Personal Allowance is completely withdrawn once adjusted net income reaches £125,140.
Is there really a 60% tax rate?
There is not an official 60% Income Tax band. However, the interaction between higher-rate tax and the withdrawal of Personal Allowance can create an effective 60% marginal rate within the £100,000 to £125,140 range for taxpayers subject to the main UK rates.
Can pension contributions reduce adjusted net income?
Certain qualifying pension contributions can reduce adjusted net income.
Do dividends count towards the £100,000 threshold?
Taxable dividend income forms part of the income considered when calculating adjusted net income.
Does rental income count?
Taxable property income can also form part of adjusted net income.
Final thoughts
Earning more than £100,000 can create a surprisingly complicated tax position.
The important number is not simply your salary.
It is your adjusted net income.
Once that exceeds £100,000, the Personal Allowance begins to disappear, creating a particularly expensive band of income before the allowance is fully removed at £125,140.
Planning ahead can help you understand the effect of:
- Salary
- Bonuses
- Dividends
- Pensions
- Rental income
- Investments
- Charitable giving
At Merranti Accounting, we help individuals and company directors understand their personal tax position and plan ahead before important thresholds are crossed.
Explore our accountancy services or contact Merranti Accounting to discuss your tax position.
Written by Jack Smith MAAT
Senior Client Manager, Merranti Accounting
Jack is an AAT-qualified accountant with extensive experience supporting individuals, SMEs and owner-managed companies with tax planning, year-end accounts, forecasting and wider financial decisions.
Author image: Use Jack’s existing Merranti headshot.
