Personal Allowance Taper
The gradual withdrawal of the Personal Allowance for people with adjusted net income above £100,000, reducing it by £1 for every £2 of income above that level. The allowance is fully withdrawn once income reaches £125,140, creating an effective 60% marginal tax rate on income in this £25,140 band. Pension contributions are one of the most effective ways to reduce adjusted net income and reclaim all or part of the Personal Allowance.
Related Terms
Personal Allowance
The amount of income you can earn in a tax year before paying income tax, currently £12,570 and frozen until April 2028.
Marginal Rate
The rate of tax paid on the next pound of income you earn, which determines the tax cost or saving of earning slightly more or less.
Pension Tax Relief
A government top-up on pension contributions that effectively returns income tax paid on the contributed amount, making pensions a highly tax-efficient saving vehicle.
Additional Rate
The highest income tax rate in England, Wales, and Northern Ireland, charged at 45% on taxable income above £125,140.
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