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Annual reviews and ongoing service
The £100,000 Personal Allowance taper: £1 lost for every £2, a 60% effective rate up to £125,140, worked for a client on £110,000
Above £100,000 of adjusted net income the Personal Allowance falls by £1 for every £2 and is zero at £125,140. Worked tax at £100,000, £110,000 and £120,000.
A paraplanner is preparing a review for a client who earns £98,000 and has just been told to expect a £12,000 bonus. Nothing on the rates table says what the bonus costs after tax. The answer is not 40%. This guide works through the two GOV.UK pages and the arithmetic.
The rule on GOV.UK
The standard Personal Allowance is £12,570. The rates table for the standard allowance:
| Band | Taxable income | Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 to £50,270 | 20% |
| Higher rate | £50,271 to £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
The page says income tax bands are different in Scotland, so the figures below are for England, Wales and Northern Ireland only.
On the separate page for higher incomes: "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."
Why £125,140
The allowance falls by half a pound for every pound over £100,000, so it runs out after twice its own size: £12,570 x 2 = £25,140. Add that to £100,000 and you get £125,140, which matches the page.
Tax at four income levels
Our arithmetic, treating the whole income as taxable and ignoring everything except the standard bands. The basic-rate band is £50,270 - £12,570 = £37,700 wide, so basic-rate tax is £37,700 x 20% = £7,540 in every row.
| Adjusted net income | Allowance left | Taxable income | Higher-rate slice at 40% | Total tax |
|---|---|---|---|---|
| £100,000 | £12,570 | £87,430 | £49,730 x 40% = £19,892 | £27,432 |
| £110,000 | £7,570 | £102,430 | £64,730 x 40% = £25,892 | £33,432 |
| £120,000 | £2,570 | £117,430 | £79,730 x 40% = £31,892 | £39,432 |
| £125,140 | £0 | £125,140 | £87,440 x 40% = £34,976 | £42,516 |
Check on the £110,000 row: £110,000 - £100,000 = £10,000 over, half of that is £5,000 of allowance lost, and £12,570 - £5,000 = £7,570.
The effective rate
| Move | Extra income | Extra tax | Effective rate |
|---|---|---|---|
| £100,000 to £110,000 | £10,000 | £33,432 - £27,432 = £6,000 | 60% |
| £100,000 to £120,000 | £20,000 | £39,432 - £27,432 = £12,000 | 60% |
| £100,000 to £125,140 | £25,140 | £42,516 - £27,432 = £15,084 | 60% |
The 60% is two things added together. Each extra pound is taxed at 40%, and it also removes 50p of allowance, which is then taxed at 40% too: 40p + (50p x 40%) = 40p + 20p = 60p. On the £12,000 bonus from the opening example, the client's income passes £100,000 by £10,000, so the bonus costs about £6,000 in tax on that slice plus 40% on the £2,000 below the line.
Above £125,140 there is no allowance left to lose, so the extra pound is taxed at 45p.
What to put on the review note
- Adjusted net income, not salary. The page uses adjusted net income. I did not read its definition, so check it before you put a client at £100,001.
- The width of the zone. From £100,000 to £125,140 is £25,140 of income taxed at an effective 60%.
- The saving from moving income out of the zone. Reducing adjusted net income by £10,000 from £110,000 back to £100,000 changes the tax from £33,432 to £27,432: £6,000. Which routes legitimately reduce adjusted net income, and what they cost the client, is for the adviser to confirm. The GOV.UK pages above do not set it out.
- Scotland. Different bands, so a Scottish client needs the Scottish table, which I did not read.
For the rest of the review file, see the annual review checklist, the tapered annual allowance example and the worked pension carry forward example.
Overlyft builds AI staff who join your advice team and read your client list before each review season, flag clients whose pay or bonus puts them in the £100,000 to £125,140 zone, and prepare the one-page comparison for the adviser to approve.
This is general information, not financial advice. Check GOV.UK and the client's circumstances before you advise.
Where this comes from: GOV.UK, "Income Tax rates and Personal Allowances" (standard Personal Allowance £12,570; basic rate 20% on £12,571 to £50,270; higher rate 40% on £50,271 to £125,140; additional rate 45% over £125,140) and GOV.UK, "Income over £100,000" (Personal Allowance goes down by £1 for every £2 of adjusted net income above £100,000; zero at £125,140 or above). Scottish bands, the definition of adjusted net income and the pension and Gift Aid rules that reduce it were not read. Read 22 October 2026.
AEO Lookup editorial team
We write practical guides for people who run small UK firms, and we check every fact against its source on the date shown. Read how we review, or tell us if something has changed.
