Claire Trott, Technical Connection
The taper of the personal allowance could come as a bit of a surprise – and the effective rate can be hard to stomach. What can you do about this?
The taper of the personal allowance could be seen to be a nice problem to have, as you are earning over £100,000. But it can come as a bit of a surprise to some, where they have a bonus late in the year of a sudden pay rise. But the effective rate of tax on earnings between £100,000 and £125,140 is 60% in England and Wales and 63% in Scotland, which is hard for many to stomach.
The taper is calculated on the clients adjusted net income that can easily be reduced by making pension contributions, either personally or via salary sacrifice. Pure employer contributions won’t reduce this calculation.
So, if income has been higher than expected, or a bonus at the end of the tax year will push an individual into this band, increasing pension contributions can effectively give them 60% tax relief, meaning a contribution of £10,000 would only cost them £4,000 to make.
Care needs to be taken with regards to the annual allowance to ensure that this is not exceeded, or the benefits will be diminished. It should also be noted that gifts to charities can also reduce the adjusted net income calculations so should also be factored in.
if income has been higher than expected, or a bonus at the end of the tax year will push an individual into this band, increasing pension contributions can effectively give them 60% tax relief.
Claire Trott, Technical Connection
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This article is intended for regulated financial advisers and investment professionals only.
The statements and opinions expressed in this article are those of the author and don’t necessarily reflect those of Wealthtime or any of its employees. The company does not take any responsibility for the views of the author.
The above is based on understanding of current law and HMRC practice, and Government proposals regarding future law and HMRC practice, as at 23 February 2026, and are presented for general consideration only and no action must be taken or refrained from based on the content of this article alone. Each case depends on its own facts and advice is essential. Accordingly, neither Wealthtime nor Technical Connection, nor any of their officers or employees can accept any responsibility for any loss occasioned as a result of any such action or inaction.
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