Why £100,000 Is the Most Expensive Income Level in the UK

Without planning, this can result in a disproportionate tax burden on relatively small increases in income.

• The personal allowance reduces once income exceeds £100,000
• It is fully lost at £125,140
• This creates an effective tax rate of up to 60%
• Small increases in income can trigger large tax liabilities
• Planning can often restore lost allowances and reduce exposure

Once your income exceeds £100,000:

Your personal allowance begins to reduce
It decreases by £1 for every £2 of additional income

This continues until the allowance is fully removed.

For many individuals, this happens at £125,140 — meaning no tax-free allowance remains.

This is where the inefficiency arises.

As income increases between £100,000 and £125,140:

You pay higher-rate tax of 40%
You also lose your personal allowance by £1 for every £2 income increase. 

This effectively means you are taxed twice on the same income segment.

The result is an effective tax rate of up to 60% within this band, one of the highest marginal rates in the UK tax system.

If your income increases by £10,000 within this range:

£4,000 may be payable in higher-rate tax of 40% like normal.
However the additional £5,000 of tax free personal allowance will be lost and therefore subject to tax at 40% to £2,000.

Totaling a £6,000 tax liability out of the £10,000 increase. 

This leads to significantly higher tax than expected on what appears to be a modest increase in earnings.

Many individuals focus on headline tax rates:

20%
40%
45%

However, the interaction between thresholds and allowances is where real inefficiencies occur.

This “hidden” 60% band is not always obvious but it is highly impactful.

This is one of the most important areas for proactive tax planning.

Depending on circumstances, it may be possible to:

• Reduce taxable income below £100,000 by using salary sacrifice
• Preserve or restore the personal allowance
• Smooth income across tax years
• Use pension contributions efficiently
• Adjust how income is extracted (for business owners)

Even relatively simple adjustments can produce meaningful tax savings.

This issue commonly affects:

• Senior employees receiving bonuses
• Business owners extracting profits
• Professionals with variable income
• Individuals with multiple income sources

In many cases, individuals cross the £100,000 threshold without fully realising the implications.

• The loss of personal allowance is gradual but impactful
• The effective tax rate can exceed headline rates
• Bonuses can unintentionally push income into this band
• Planning opportunities often exist before the tax year ends
• Small adjustments can have disproportionate benefits

The £100,000 income threshold is one of the most inefficient points in the UK tax system.

While earnings increase, the loss of allowances creates a hidden layer of taxation that can significantly reduce net income.

Understanding this threshold and planning around it, is one of the most effective ways to improve overall tax efficiency.

If you need any help or advice in this complex area please contact us! We are happy to help.

Disclaimer. The information in this article is general in nature and does not constitute personal financial, tax, or legal advice. UK tax legislation changes frequently, and the specific application of any rule or strategy depends on individual circumstances. Figures, thresholds, and reliefs mentioned are correct as of the 2026 to 2027 tax year unless otherwise stated. Before acting on any information here, consult a qualified adviser who has reviewed your full situation. Bluebond Tax Planning provides personal recommendations only under a signed client agreement, following a full review. Bluebond Tax Planning operates under UK legal frameworks and recognised professional conduct standards. Tax planning and legal work are not FCA regulated.