The Personal Allowance Taper
The standard personal allowance is £12,570 for 2025/26. However, it begins to reduce when your adjusted net income exceeds £100,000. For every £2 of income above £100,000, you lose £1 of personal allowance. By £125,140, the allowance is completely eliminated.
This creates an effective marginal tax rate of 60% on income between £100,000 and £125,140 — 40% higher-rate income tax plus 20% tax on the income that was previously covered by the personal allowance. This is sometimes called the 60% tax trap.
How to Reduce Income Below £100,000
The most effective legal strategy is to reduce your adjusted net income below £100,000, restoring the full personal allowance. The most common methods are:
- ✓Pension contributions — every £1 contributed to a SIPP or personal pension reduces adjusted net income. A £25,140 pension contribution can restore the full personal allowance, saving £5,028 in extra tax.
- ✓Gift Aid donations — donations extend your basic-rate band, effectively reducing adjusted income
- ✓Trading losses — current-year trading losses can be set against total income
For freelancers earning in this range, the pension strategy is usually the most powerful — see pension tax relief calculator.
Personal Allowance at Different Income Levels
| Total Income | Personal Allowance | Tax-Free Amount |
|---|---|---|
| Up to £100,000 | £12,570 | £12,570 |
| £110,000 | £7,570 | £7,570 |
| £120,000 | £2,570 | £2,570 |
| £125,140+ | £0 | £0 |