Tapering of the Personal Allowance 2026/27: The £100k Tax Trap Explained

For high earners, the tapering of the Personal Allowance creates one of the most punitive effective tax rates in the UK system. Often referred to as the “£100,000 tax trap,” this mechanism significantly erodes the tax-free income of individuals once their earnings cross a specific threshold.

With the Personal Allowance frozen at £12,570 through to 2028, more individuals are being drawn into this band each year. Understanding how the taper works is critical for effective tax planning in the 2026/27 tax year.

How the Tapering of the Personal Allowance Works

The standard Personal Allowance for the 2026/27 tax year is £12,570. This is the amount of income an individual can receive before they start paying Income Tax. However, this allowance is reduced for those with high incomes.

The rule, set out in legislation, is straightforward: For an individual whose adjusted net income exceeds £100,000, the allowance… is reduced by one-half of the excess.

This means that for every £2 of adjusted net income an individual earns above £100,000, their tax-free Personal Allowance is reduced by £1.

Example: An individual has an adjusted net income of £110,000.

• Their income is £10,000 over the £100,000 threshold.
• The reduction to their Personal Allowance is £10,000 / 2 = £5,000.
• Their Personal Allowance for 2026/27 is £12,570 – £5,000 = £7,570.

Once an individual’s income reaches £125,140, the entire Personal Allowance is tapered away to zero. This threshold is significant as it is also the point at which the 45% additional rate of income tax begins.

The Impact: A 60% Effective Marginal Tax Rate

The tapering of the Personal Allowance creates a hidden marginal tax rate for income falling within the £100,000 to £125,140 band. While not an official tax rate, the mathematical effect is an effective rate of 60% for most UK taxpayers in this bracket.

This high rate occurs because income in this band is taxed twice:

1. Directly: The income is taxed at the higher rate of 40%.
2. Indirectly: It causes the loss of the tax-free Personal Allowance, which pushes income that would have been tax-free into the 40% tax band.

This creates a significant disincentive, where a pay rise or bonus can result in a much smaller net gain than anticipated.

What is “Adjusted Net Income”?

The threshold for the taper is based on your “adjusted net income,” not just your gross salary. This is a specific technical term with a calculation set out in the Income Tax Act 2007.

Broadly, you calculate adjusted net income by taking your total taxable income and deducting certain reliefs, most notably:

• The gross value of any personal pension contributions.
• The gross value of any charitable donations made under Gift Aid.

This definition is crucial because it provides the primary route for mitigating the impact of the taper.

Strategic Planning for the 2026/27 Tax Year

Individuals with income approaching or within the £100,000 to £125,140 band can take steps to preserve their Personal Allowance.

Pension Contributions

Making pension contributions is the most common and effective way to reduce your adjusted net income. Because the contribution is deducted from your income for the taper test, it can fully restore your Personal Allowance.

Example: An individual with an income of £110,000 makes a gross pension contribution of £10,000.

• Their adjusted net income becomes £110,000 – £10,000 = £100,000.
• As their adjusted net income is no longer above the threshold, they are entitled to the full Personal Allowance of £12,570.
• Not only do they receive tax relief on their pension contribution, but they also regain £5,000 of their tax-free allowance, saving an additional £2,000 in tax (£5,000 @ 40%).

Salary Sacrifice Arrangements

Agreeing with an employer to reduce salary in exchange for a non-cash benefit, such as increased employer pension contributions, can also be an effective strategy. This lowers your gross taxable income and, therefore, your adjusted net income.

For the definitive legal basis of the taper, you should refer to the Income Tax Act 2007, specifically sections 35 and 58. HMRC’s technical guidance also provides detailed examples of calculating adjusted net income.