What Are the Tax Implications of Earning Over £100,000?

Crossing the £100,000 income threshold is a financial milestone for many professionals and business owners. However, it also brings unexpected tax implications that can catch you off guard if you’re unprepared.

At Welf Accountants, we guide high earners through these complex tax rules to help reduce liabilities and keep more of what you earn.

The Personal Allowance Taper

One of the biggest tax changes after you earn £100,000 is the reduction of your Personal Allowance.

• For the 2025/26 tax year, the Personal Allowance is £12,570.

• Once your income exceeds £100,000, your allowance is reduced by £1 for every £2 you earn above this threshold.

• By the time your income hits £125,140, your entire Personal Allowance is gone.

This creates an effective 60% marginal tax rate on income between £100,000 and £125,140.

How the Effective 60% Tax Rate Works

Let’s say you earn £110,000:

• That’s £10,000 over the £100,000 threshold.

• You lose £5,000 of your tax-free Personal Allowance.

• This £5,000 is then taxed at 40%, meaning you pay an extra £2,000 in tax.

• Combined with the 40% tax on the £10,000 itself (£4,000), your effective tax on this £10,000 is £6,000 — or 60%.

National Insurance Still Applies

On top of income tax, don’t forget about National Insurance Contributions (NICs):

• Employee NICs are 2% on earnings above the upper earnings limit (£50,270 as of 2025/26).

• Employers also pay NICs, which can increase the cost of hiring or rewarding high earners.

Additional Tax Impacts to Consider

• Child Benefit Charge: If one partner earns over £50,000, the High Income Child Benefit Charge kicks in. At £60,000+, you effectively lose all of it.

• Pension Contributions: Tapered annual allowance may apply if your “adjusted income” exceeds £260,000, limiting how much you can contribute tax-free.

• Student Loan Repayments: Higher income means higher monthly repayments if you’re repaying a Plan 1, Plan 2 or Plan 4 student loan.

Tax Planning Strategies for High Earners

At Welf Accountants, we help clients earning over £100,000 use legitimate strategies to reduce their tax bill:

1. Make Pension Contributions
   Contributions to a personal or workplace pension reduce your “adjusted net income,” potentially restoring some or all of your Personal Allowance.

2. Charitable Donations
   Gift Aid donations also reduce your taxable income and can push you back below key tax thresholds.

3. Salary Sacrifice Schemes
   Reduce taxable income by sacrificing part of your salary in exchange for non-cash benefits like pensions, electric cars, or additional leave.

4. Tax-Efficient Investments
   Consider ISAs, Venture Capital Trusts (VCTs), or Enterprise Investment Schemes (EIS) for tax reliefs and long-term growth.

5. Income Splitting
   If you’re in a partnership or have a spouse in a lower tax band, income redistribution may lead to tax savings.

The UK tax system becomes considerably more complex above £100,000. Missteps can be costly, but with tailored advice, you can optimise your finances and reduce your liabilities.

Speak with Welf Accountants today by clicking here and get expert guidance on high-income tax planning.

Disclaimer: The information provided in this blog is for general informational purposes only and does not constitute financial or tax advice. Before making any investment decisions or relying on any of the information provided, you should seek professional advice tailored to your specific circumstances. Welf Accountants accepts no responsibility for any losses or liabilities arising from the use of this information. Correct as of date of publication.