Losing your personal allowance between £100,000 and £125,140

What adjusted net income is

Adjusted net income is total taxable income for the year — including a bonus, and an RSU vest taxed through payroll that year — after specific deductions only: a trading loss, a Gift Aid donation grossed up to its pre-tax amount, or money paid into a personal pension under relief at source, grossed up to its pre-tax amount (Income Tax Act 2007 s58). It is not simply salary, and it is not take-home pay.

The rule

Once adjusted net income passes £100,000, the personal allowance — the slice of income taxed at 0% — is reduced by £1 for every £2 above that threshold (Income Tax Act 2007 s35). For 2025/26 the allowance is £12,570, so it is used up entirely once adjusted net income reaches £125,140 (£100,000 + £12,570 × 2).

A worked example, in invented round figures

Take an adjusted net income of £108,000. The excess over £100,000 is £8,000; divided by two, £4,000. The personal allowance falls from £12,570 to £8,570. That £8,000 band of income is taxed as though £4,000 of it, which would otherwise have been tax-free, no longer is — an effective rate above the headline 40% rate, for as long as adjusted net income sits in this band.

A staircase, not a slope

The reduction is rounded down to the whole pound, so it does not fall smoothly. Two consecutive pounds of adjusted net income can leave the allowance exactly the same: £108,000 and £108,001 both give a personal allowance of £8,570, because HMRC divides the excess by two and rounds down before subtracting it. The next pound, £108,002, takes the allowance to £8,569. It is flat for a pound, then down a step, all the way to nil at £125,140.