The effective marginal rate on every pound of income between £100,000 and £125,140 — 40% tax, 2% National Insurance, and the personal allowance disappearing at 50p in the pound. It is triggered by adjusted net income, which is a figure you have some control over.
Most people never encounter the phrase. Then they hit an income level where three separate rules start watching a figure that is not their salary, not their taxable income and not the number on their P60 — and suddenly it is the most important quantity in their tax affairs.
Adjusted net income is a defined measure, it is calculated after certain deductions, and those deductions are things you can choose to do. That combination is unusual in UK tax: it is one of the few places where a decision made before the tax year ends changes the answer materially and legitimately.
What It Actually Is
Broadly, adjusted net income is your total income from all sources — employment, self-employment, rent, dividends, savings interest, pensions in payment — reduced by certain reliefs. The two that matter in practice are:
- Gross personal pension contributions. The gross figure, not what left your bank account. A £4,000 contribution to a relief-at-source scheme becomes £5,000 gross once basic-rate relief is added, and it is £5,000 that comes off.
- Gift Aid donations, grossed up in the same way.
Note what is not deducted: your personal allowance, and the ordinary tax and NI you pay. Adjusted net income sits above all of that in the calculation, which is why it can be higher than any number you recognise from a payslip.
Do not confuse it with "adjusted income". They are different measures used by different rules. Adjusted net income drives the personal allowance taper, the child benefit charge and marriage allowance. Plain "adjusted income" — a broader figure that adds pension contributions rather than deducting them — drives the tapered annual allowance above £260,000. Pension contributions push one down and the other up.
Rule One: the Personal Allowance Taper
Above £100,000 of adjusted net income, the £12,570 personal allowance falls by £1 for every £2, reaching nil at £125,140. Because the lost allowance was being taxed at 0% and is now taxed at 40%, each extra pound in that band costs 40p in tax plus 20p from the vanishing allowance plus 2p in National Insurance — a 62% marginal rate.
Turned around, that is a 62% saving rate on anything that brings income back below £125,140, which is the most valuable planning opportunity in ordinary UK tax. Here is the arithmetic on a £105,000 income, computed with the same engine as our take-home pay calculator:
| No contribution | £5,000 gross into a pension | |
|---|---|---|
| Adjusted net income | £105,000 | £100,000 |
| Personal allowance | £10,070 | £12,570 |
| Income tax | £30,432 | £27,432 |
| Tax saved | — | £3,000 |
| Net cost of the £5,000 | — | £2,000 |
Five thousand pounds into your own pension for a net cost of two thousand — 60% relief on the income tax alone. Nothing else in the ordinary tax system pays like that, and it is available to anyone in the band who acts before the tax year ends. The full picture is in our £100k tax trap article.
Rule Two: the High Income Child Benefit Charge
Adjusted net income also decides the child benefit charge. Above £60,000, the higher earner in a household receiving child benefit repays 1% of it for every £200 of income above that threshold, so it is fully clawed back at £80,000.
For a family with two children, child benefit is worth approximately £2,076 a year. Spreading that clawback across the £60,000–£80,000 band adds roughly ten percentage points to the marginal rate, so a two-child household in that band faces an effective rate around 52% — on an income most people would not describe as high.
A parent at £70,000 repays 50% of the benefit, about £1,038. Bringing adjusted net income to £60,000 eliminates the charge entirely. Our child benefit calculator works out a specific case.
Rule Three: Marriage Allowance
The smallest of the three, but worth knowing: eligibility to transfer part of a personal allowance between spouses depends on income levels, and adjusted net income is the relevant measure. Couples on modest incomes sometimes lose the allowance because of a bonus or a small second income and never notice.
What Reduces It, and What Does Not
| Action | Reduces adjusted net income? |
|---|---|
| Personal pension contribution (gross amount) | Yes |
| Salary sacrifice into a pension | Yes — the sacrificed pay never becomes your income |
| Gift Aid donation (grossed up) | Yes |
| Paying more income tax | No — tax paid is not a deduction |
| Putting money into an ISA | No — ISA subscriptions are not deductible |
| Overpaying your mortgage | No |
The ISA row surprises people every year. An ISA shelters future returns from tax; it does nothing to the income figure that got you there. If the goal is to get under a threshold, a pension contribution or Gift Aid is the lever — see how pension tax relief works for the mechanics of each route.
Timing Is the Whole Thing
Adjusted net income is measured over the tax year. Once 5 April has passed, the figure is fixed and the opportunity has gone. Anyone whose income is variable — bonuses, commission, dividends, a good year in a business — should be estimating the number in the winter, not discovering it when the return is filed.
Frequently Asked Questions
What is adjusted net income?
Your total income from all sources, less certain reliefs — chiefly gross personal pension contributions and grossed-up Gift Aid donations. It is calculated before the personal allowance is applied, so it is usually higher than your taxable income.
Why does adjusted net income matter?
Three rules key off it: the personal allowance taper above £100,000, the High Income Child Benefit Charge between £60,000 and £80,000, and marriage allowance eligibility. All three can be changed by reducing the figure.
How do I reduce my adjusted net income?
Gross pension contributions and Gift Aid donations are the two main deductions, and salary sacrifice works because the sacrificed pay never becomes your income at all. ISA subscriptions and mortgage overpayments do not reduce it.
Is adjusted net income the same as adjusted income?
No. Adjusted net income drives the personal allowance taper and child benefit charge. "Adjusted income" is a wider measure that adds pension contributions back in and drives the tapered annual allowance above £260,000 — a contribution moves the two figures in opposite directions.
What is the 62% tax rate?
The effective marginal rate between £100,000 and £125,140: 40% income tax, 2% National Insurance, and 20% more from the personal allowance being withdrawn at £1 for every £2 of income.
When is the deadline to reduce it?
The end of the tax year on 5 April. Adjusted net income is measured across the year, so contributions made after it closes affect the following year instead.
Related Guides
Keep reading with these related guides:
- The £100k Tax Trap — the personal allowance taper in full
- Tapered Annual Allowance — the other, wider "adjusted income" measure
- How Pension Tax Relief Works — the mechanics of the deduction
- UK Tax Bands Explained — the underlying rates and thresholds
- High Earner Tax Tips — the wider planning picture
- Child Benefit Calculator — work out your charge
- All Tax Guides
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