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Tax Implications of Earning Over £100k

What are the tax implications of earning over £100k?

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.

Let’s start by looking at how the UK income tax system works:

How do UK income tax rates work?

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.

Below are the current income tax rates and bands for the 2034-24 tax year:


Personal Allowance

Up to £12,750

Basic Rate

£12,571 to £50,270

Higher Rate

£50,271 to £125,140

Additional Rate

Over £125,140

How do UK income tax rates work?

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.

  • up to £50,270 will be taxed at the basic rate (20%)
  • your income between £50,271 and £125,140 will be taxed at 40%
  • earnings over £125,140 will be taxed at £45% 

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.

  • Mel earns £100,000, and is given a £500 pay rise. 
  • This additional £500 will be taxed at 40% in line with the tax rates 
  • However, for every £2 Mel earns over £100,000, she now loses £1 of her tax-free Personal Allowance.
  • This means that £250 of her Personal Allowance now needs to be taxed at her normal 40% higher rate
  • 40% of £250 is £100, so Mel will now pay the additional £100 tax on top of the normal 40% tax she pays on her earnings above £100,000, which in is £200. 
  • Therefore Mel has paid £300 tax on the £500 element of her pay increase, which equates to 60% tax

When does the tax rate change to 45%

  • If Mel earns over £125,140 she will have lost her entire Personal Allowance and her earnings over £125,140 will be taxed at 45% with the rest of her earnings being taxed in line with the table above. 

For further information about saving tax liability please give BKS Accounts a call.