In the UK (2025/26 tax year), you lose your £12,570 personal allowance when your adjusted net income exceeds £100,000. The allowance is reduced by £1 for every £2 earned over this threshold. It is completely gone once your income reaches £125,140 or more, creating an effective 60% tax rate on income between £100,000 and £125,140.
If Olive puts £10,000 into her pension, she reduces her 'adjusted net income' to £100,000. That means she doesn't lose her personal allowance. She doesn't fall into the tax trap, and she helps grow her pension, which could give her more money in retirement.
Earning over £100,000 is an exciting milestone, but it often comes with changes to tax benefits. For example, when your adjusted net income (your total taxable income excluding your personal allowance and certain tax reliefs) exceeds £100k, you'll start to lose your personal allowance.
The personal allowance is an income tax-free portion of your income. In the 2024/25 tax year that goes from 6th April 2024 to 5th April 2025, the personal allowance is the first £12,570 of your income. However, if you earn over £100,000 per year, your personal allowance decreases.
If you earn more than £100,000
Your personal allowance goes down by £1 for every £2 that your adjusted net income is above £100,000. This means your allowance is zero if your income is £125,140 or above.
To find your 2025 tax bracket, you need your taxable income and filing status, as the U.S. uses a progressive system where different income portions are taxed at different rates (10%, 12%, 22%, 24%, 32%, 35%, 37%). For example, a single filer's first $11,925 is taxed at 10%, the next chunk ($11,926-$48,475) at 12%, and so on.
For an $110,000 income in the U.S., your federal income tax depends on your filing status and deductions, but generally, you'll fall into the 22% or 24% federal tax brackets for 2024/2025, plus Social Security (6.2%) and Medicare (1.45%) taxes, with total federal/state/local tax often around 25-35% or more, significantly reducing your take-home pay. For example, in Utah, a single person might pay around $17,128 in federal tax and roughly $30,878 total tax (including Social Security, Medicare, and state tax).
For most individuals and small families, $100,000 is a good salary and well above both the median individual and household income. Cost of living and family size can affect how far $100,000 will go, but generally speaking, you can live comfortably on $100,000 a year.
So why is this known as the £100k tax trap? The term refers to the fact that any income between these amounts is effectively taxed twice: The standard higher tax rate (40%). Another 40% tax on the remaining income after your reduced personal allowance is deducted.
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.
Key Takeaways. High earners are taxed at higher marginal rates, but proactive planning can significantly reduce taxable income. The most effective strategies combine retirement contributions, tax-advantaged accounts, and income-timing decisions rather than relying on a single tactic.
To avoid the 22% tax bracket (or any higher bracket), focus on reducing your taxable income through strategies like maxing out 401(k)s and HSAs, deferring bonuses, tax-loss harvesting, smart charitable giving, and strategic asset location, understanding that higher rates only apply to income within that bracket, not your entire income.
April 10, 2025, the House adopted the Senate's amended version of the budget resolution, which allows $5.3 trillion in deficit-financed tax cuts (the combination of $3.8 trillion of tax cuts assumed to be “costless” under a current policy baseline plus $1.5 trillion in additional deficits permitted), deficit increases ...
You'll most likely get a tax refund if you claim no allowances or 1 allowance. If you want to get close to withholding your exact tax obligation, claim 2 allowances for yourself and an allowance for however many dependents you have (so claim 3 allowances if you have one dependent).
Your personal allowance has been decreased, so you get less than £12,570 tax-free. This may be because you; Receive additional employment benefits, such as a company car, workplace parking, private healthcare, that are taxable benefits.