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  • Barry Adams

Income exceeding £100K? Start tax planning.

Tax planning

If you earn over £100,000 in any tax year, your personal allowance is gradually reduced by £1 for every £2 of adjusted net income over £100,000, irrespective of age. This means that any taxable receipt that takes your income over £100K will result in a reduction in personal tax allowances. Accordingly, your personal Income Tax Allowance would be reduced to zero if your adjusted income is £125,140 or above.

Your adjusted net income is your total taxable income before any personal allowances, less certain tax reliefs such as trading losses and certain charitable donations and pension contributions.

For the current tax year, if your adjusted net income is likely to fall between £100,000 and £125,140 you would pay an effective marginal rate of tax of 60%, as your £12,570 tax-free personal allowance is gradually withdrawn.

If your income sits within this band, you should consider tax planning opportunities available to avoid this personal allowance trap, by reducing your income to below £100,000. This can include giving gifts to charity, increasing pension contributions and participating in certain investment schemes.

A higher rate or additional rate taxpayer who wanted to reduce their tax bill, could make a gift to charity in the current tax year and elect to carry back the contribution to 2022-2023. A request to carry back the donation must be made before or at the same time as the 2022-23 self-assessment return is completed, i.e. by 31 January 2024.

If you would like to discuss your current situation with us, feel free to book a call with Greg or Barry and we will be happy to advise you on what your best options are.

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