If you are lucky enough to earn over £100k, it is important that you understand the tax implications that come with this higher level of income.
In this article, we’ll explore how the UK income tax system works, what this means for individuals earning over £100,000, and the tax relief options that you should be aware of when your earnings reach and surpass £100k.
By understanding the tax implications of earning over £100,000, it will be easier to make financial decisions that could save you hundred’s of pounds on your tax bill.
Everybody who works in the UK is subject to income tax, which is charged based on their annual income. The tax rates are divided into different bands, as shown in the table below.
Prior to looking at the table, it is important to point out that within the current UK tax system, individuals earning less than £100,000 won’t be charged any tax on the first £12,570 they earn. This is called your Personal Allowance. Once you earn over £12,570, there are three main tax brackets.
|BAND||TAXABLE INCOME||TAX RATE|
Up to £12,750
£12,571 to £50,270
£50,271 to £125,140
Once you begin earning £100,000, the key change is that you start losing your tax-free Personal Allowance. For every £2 you earn over £100,000, you lose £1 of your allowance – meaning you are taxed at 40% on more of your income.
Your income up to £125,140 will be taxed according to the normal rates.
However, because of the loss of your Personal Allowance, you will effectively be taxed at 60% on your earnings between £100,000 and £125,140 because your personal allowance has been decreased.
Below there is an example showing exactly how tax is charged when you earn over £100k.
For further information about saving tax liability please give BKS Accounts a call.