Ndubuisi Egwim breaks down two UK tax traps for high earners. Above £100,000 income, you lose £1 of personal allowance for every £2 earned, creating a 60% marginal tax rate until £125,140. At £260,000, your annual pension allowance shrinks from £60,000 to as little as £10,000.
The second one is at £100K. I call it the 60% tax trap. You never hear HMRC call it 60%, but that's what it is. It's an effective 60% tax trap. For every £2 in adjusted net income you earn above £100K, you lose £1 from your basic tax allowance. Personal allowance. So by the time you hit £125,140, you've lost the entire £12,570. We built a whole calculator for this, NHS salary calculator. By the time you use up that entire 12,570, you are now paying an effective 60% tax rate. What it does, it pushes more of your money into more taxable bands. So these are the clawbacks. Of course, there's a third one somewhere higher up. I've seen a few doctors in our community. I give doctors an example because I work a lot with doctors, thousands of doctors. So $260K in adjusted net income, if you cross $260K, at that point you start losing your pension allowance, that's 60k. Yes, you wouldn't be able to contribute up to 60k in your pension, and it gets to a point where you might lose the entire thing, or you— sorry, you lose up to 10k. You get to the point where you can only contribute up to 10k. So these are tax traps you should watch out for.
