In this live educational session, the hosts explain how UK personal tax rules can turn a £120,000 salary into an effective 60% tax rate for doctors and other high‑earning professionals. They start by defining the personal allowance (£12,570) and the “£2‑over‑£100k loses £1 of allowance” rule that erodes the allowance by £1 for every £2 earned above £100k, eliminating it completely around £125,140. The discussion covers adjusted net income, how pension contributions and other deductions can reduce it, and why the tax code changes at the adjusted net income threshold, not gross salary. They introduce practical tools such as a free NHS salary calculator and a downloadable checklist/guide to avoid the tax trap. Audience questions clarify individual versus joint allowances, marriage allowance transfers, the High‑Income Child Benefit charge above £60k, and the concept of fiscal drag caused by a stagnant personal allowance. The presenters stress that many doctors mistakenly think their top marginal rate is 45% when, due to the allowance loss, the effective rate can reach 60%, and they outline actionable steps—optimising pension contributions, using the calculator, and leveraging the guide—to protect earnings.
Chapters
Everyone in the UK has a personal allowance. Surprisingly and shockingly, it's still just £12,570. We're not ungrateful for it, we just don't want to lose it. But we're thinking it should be more than that now. It should be at least £20-25K. On the flip side, if you earn above £100,000 in adjusted net income, just think about it from the point of view, and above £100K, the government thinks, hmm, not sure now you still need that personal allowance, which is crazy because just you earn above £100,000 doesn't make you rich. Now, if you earn above £100K, for every £2 above £100K, the government deduct £1 from that £12,570. So that pushes more of your money into taxable income. Uh, let's stop sharing for a minute. Open your checklist if you've got it physically. That'll be grand if you— yeah, I can see some of you are very organized. Mimi, it seems you've got your own physically. So if you've got your checklist, open up your checklist. Yeah, if you've got like, um, if you go— if you don't have your checklist but you just have it, you know, on the side, um, on your desktop, that could still be all right. Or you get out a sheet of paper and write I've got mine here as well. So the first thing to look at is A, the checklist. We'll start from there. Again, remember the idea is never overpay tax again, especially this tax here. The first thing, can someone tell me in the chat what the first allowance you can see from there? If you tell me in the chat, I told you it was going to be a two-way thing. Personal. Yeah. Sunday. Good to have you here. Yeah. So personal allowances, right? So when it comes to personal allowances, what are we interested in? Everyone in the UK has a personal allowance. Surprisingly and shockingly, it's still just £12,570. We're not ungrateful for it, we just don't want to lose it, but we're thinking it should be more than that now. It should be at least £20-25K. What's your personal allowance? It's basically the amount that you earn and you don't have to pay any taxes on. It's absolutely tax-free. That's your personal allowance. Okay, when I was in the UK, when I first came to UK, I was a student. For my first whole one year, I didn't work. And the first year I worked, when I started working, by April the tax year had ended. So I started working in January, April tax year had ended, and that tax year I earned below the personal allowance. So I didn't earn up to £12,570, so I pay no taxes. Okay, it was about the time I was getting my GMC my commercial license, I learned about how to use a limited company. That was the time when IRO35 became a little bit more, you know, enforced, which is good, right? So the same applies to you if you work, or your partner, or your spouse, or your child, or a staff is earning less than £12,570, they don't have to pay any taxes on it. On the flip side, if you earn above £100,000, in adjusted net income. Don't worry about adjusted net income, we'll explain that. Just think about it from the point of view, if you earn above 100K, the government thinks, hmm, not sure, now you still need that personal allowance, which is crazy because just because you earn above 100,000 doesn't make you rich. Most of you know this already because you earn above 100,000, because by the time you pay the bills and taxes and different things, suddenly you seem to be, you know, struggling. Now above 100,000, doctors the government says, hey, doctor, for every £2 you earn above £100,000, we're going to take away £1 from your personal allowance. I'm sure you guys probably have heard me talk about this. I've been banging on that drum for the last 4 years.
Here's how to avoid the 60% tax trap as a doctor or healthcare professional. This could actually literally save you thousands of pounds because you could be unknowingly paying an effective tax rate of 60%. Now, many doctors think that the most tax they pay is 45%, but that's not right. You may have fallen into the 60% tax trap due to a sneaky rule about personal tax allowances. Now, let me tell you how it works. Everyone, especially in UK, Northern Ireland, England, and Wales, has a personal tax-free allowance of £12,570. Once you exceed £100K in income, you start to lose that tax allowance, and by the time you hit £125K, it's almost like you're punished with this sneaky 60% tax. Because your effective tax rate becomes 60%. You've lost all your tax allowance. Now, I've done a guide that will tell you step by step how this works, a checklist to check if you're falling into it, and how to avoid it. Thousands of medics have already used this guide to save thousands of pounds and secure their financial future. Don't miss out. Download the guide with the link in the description, and I hope it helps. Let's jump right back to to the episode.
Now, if you earn above £100K, for every £2 above £100K, the government deducts £1 from that £12,570. So that pushes more of your money into taxable income. Okay, what does that really— how did that really apply? If you earn £120K, can someone tell me in the chat how much of your personal allowance will you lose? Um, if you earn £120K, $20K, how much of your personal allowance will you lose? $10,000. I love it. You guys are in game. Wonderful. Fantastic. $10,000. So that means you've only got $2,570 left that is tax-free. What happens is that the rest of your money keeps pushing you higher into the taxable, you know, bracket. Okay, that's why the personal allowance is really important. Now, by the time you hit $125,140, you've lost the entire thing. So 125,140 is that point where if you take the 25K, 25K, 140, divided by 2, 12,570. Ola is always quick, that's good, excellent. And can someone remind me, just come off your mic and tell me, what else is 12,570? Personal allowance. Personal allowance. So you see, this is how we get to that number. You don't have to do this math all the time. Remember, you've got the NHS salary calculator. You can just go in there, plug in your income. I built it 3 years ago because I had a radiology consultant in my mastermind who kept saying to me, Andy, but how do I know without having to do all this calculation? I thought, why can't, why can't we just do the, you know, I spent the weekend, drew up the logic for the calculator and we got it built. So you can use NHS salary calculator for free. I think the last time I checked, 25,000 people used it within the first year. It's totally for free. You can plug in your numbers. Yeah, yeah. Let's not get distracted by that. We can use it in the Tax Hack group as well. Plug in your numbers. It will tell you when you cross the, the threshold, when you get to the point where you start losing your personal allowance. It flags it up. I think I should put a red flag there so it's more dramatic and people get to know. But once you cross that threshold, once you start losing it, it tells you. So, but even if you didn't know, this is how we arrived at that number. Now, why do I say it's a little bit unfair? This 12570 was put in place— I can't remember exactly the year, um, but definitely more than 10 years ago. And when this was put in place, what 12570 meant is not what 12570 means now. So probably someone who earning £12,570, then would think they are much better off than someone who is earning £12,570. I did a little bit of math and I saw that, okay, look, if I had £100 just from 2015, 2016, that £100 for me to buy exactly what that £100 could buy when I was still brand new in the UK, I'm going to need about £138 now. So it does make sense that personal allowance should be higher than what it is now. But unfortunately, the government is raising taxes on us indirectly by not increasing that personal allowance. So that's what we call fiscal drag. Fiscal, not physical, but it feels physical. F-I-S-C-A-L. By not raising that ceiling, sorry, by not raising that floor, more of your income qualifies. And you see this apply across board as well. Okay, I believe you've understood and established personal allowance, and, um, that's just really so important that that's where we started from. So I'm just going to take a couple of questions around personal allowance if there's anything that is unclear before we move on, because once I have that foundation, we can just go from there. Anna Lee says, um, what if you have a joint account with your partner and combined what you earn over 100K, does this affect your personal allowance or is it based on individual? And then this is really, really a great question, Anna. Anna, the allowance is called personal. Does that help? So that means everyone has got their own personal allowance, just like ISA is individual savings allowance. Okay, so yeah, Anna, you still have your £12,570, your partner has their £12,570. However, if you're married or you are in, um, if you're married or you are in a civil partnership— nope, not cohabiting— if you're in a civil partnership then you could decide there's a marriage allowance where you can transfer some of your personal allowance to your partner and to save them some taxes, usually to save them about £252, which is not entirely nothing, you know, but is, um, is something. So that's for if you've got a partner who is not earning up to £12,570, then that could be a place to approach. So that's personal allowance. Okay. Anna, does that help? Did that answer the question? It, it did. I just wanted to, to check, to double check. Yeah, of course. Good to, good to have you here. Good. So personal allowance, what happens over 100K? We've already explained that. This is a point to also think about what happens above, um, 60K. For someone who is earning, um, 60K, um, let's say you were getting child benefit previously. If you earn above, if you earn above 60K and you're getting child benefit, what then happens? You start having to incur the High Income Child Benefit. So according to the government, if you earn $60K, you're a high income earner. All right. Now, what do we, what do we do about that? You could do a number of things. You can reduce your adjusted net income. And one of the ways to do that is through your pension contributions. Or you can also just look around at things you've already spent on and see if you can deduct them. And that's what we're going to work through the ABCD Right. Are you happy with that, Obe? Do you understand what I've just explained?
Um, thank you. My question is, um, I know there is this, um, once salary crosses £100,000, um, from what you explained, every £2 one makes, half of it is gone and is taken from the personal, the tax-free £112,000. 570.
That's correct.
So is it when the salary crosses 100 that the tax code changes from the 1257L, or is it because you explained something, one of your, um, materials on, on YouTube about this adjusted net income? Is it when the adjusted net income crosses 100 or when everything crosses 100? When does that happen? Which, which of the two?
Fantastic. So good question. So it's not your gross salary, it's your adjusted net income. I think this is a good opportunity now to address adjusted net income. It's not your gross salary, it's your adjusted net income. Um, your adjusted net income is basically your income. Let's say you earn $120K, that's your gross income. But what happens before you get taxed? Can someone tell me? Some deductions are made. Can someone just tell me quickly in the chat or just come off your mic? What deductions are made? Okay, NI, pension. Thank you, Anna. Okay, pensions. Okay, so adjusted net income is— you're not just wanting to look at your gross income, we want to look at your net income. What are you eventually going to go home with? That's your net income, and make the adjustment. If you contribute to taxes, then that— if you're contributing to taxes through your workplace, it's deducted before you get your net income. So HMRC has to make that adjustment before they tax you. That's why it's such a funny— and I don't think it's a very wise strategy for people who pull out from their workplace pension, because then they have more income going into taxable stuff. And I've had people on Instagram go to say nonsense on my, my videos to say, oh yeah, I don't, I'm pulling out. Most time they don't understand exactly what they're doing. But by the time you pull out of your pension, more of your income is getting into that taxable income. Yeah. So any money that's gone into, so to answer your question directly, but if you've got like $120K, it's not all the money that is being adjudged. What is adjudged? Is the adjusted net income. And that's where there's opportunity, because if your employer, it was, if they were taking away 12.5% of your, into your pension, let's say your pension contributions, NHS pension was 12.5%, so that means 12.5% of £120K. Someone who is good in math, help out. It will probably be somewhere around £15,000. That's your pension contributions. So Your adjusted net income will be £120K minus £15,000. Does that make sense? Yes, yes, it does. Yes, good. Okay, I want to make sure we're on the same page.
