Ndubuisi Egwim explains how the UK personal allowance disappears for high earners. Above £100k, you lose £1 of allowance for every £2 earned, creating a 60% effective tax rate until the allowance vanishes around £125k. Most people don't know this costs them thousands.
£12,570
£100,000
£1 of allowance lost for every £2 earned over £100,000
60% effective marginal rate
£125,140
Here's the uncomfortable truth and it's everywhere. The biggest risk to your finances is not a sudden tax rise. It's quietly overpaying taxes because no one ever explained how the system actually works. Let me show you what I mean with some clear examples. Now, one of this is the 60% tax trap. It's one of the most expensive and misunderstood tax traps. In the uk. It starts with something that sounds a bit generous. Really? In the uk everyone gets what we call a personal allowance. So what that means is currently 12,570, which is tax free. Any income below that amount is not tax. You don't have to pay any tax. But once your adjusted net income goes above 100k, something nasty starts to happen. Now, for every £2 you earn above 100k, you lose £1 of that tax free allowance. Now this creates an effective marginal tax rate of 60%. Not nice. Now let that sink in. By the time your adjusted net income reaches £125,140, your entire personal allowance is gone.
