The personal allowance is withdrawn across a band above a round number, producing an effective marginal rate far above the headline one. A pension contribution reduces adjusted net income, which is the figure the withdrawal is tested on, so it can move income back below the line and recover the allowance.
The Ledger 2 of 6
Keep
Thresholds, tapers, and the places where another pound of income can cost more than a pound.
7 sourced figuresnext checked 1 March 2027Writing held
UK income tax has steps, not a smooth slope. Cross the wrong line by a pound and you can lose a benefit in one go, or face an effective rate that looks nothing like the headline band. The £100,000 adjusted net income test is the best known, and it is only one of several edges that show up on payslips and tax returns.
What this is not
We explain how these rules work and quote the registered figures. We do not map them onto your household; that needs someone who can see your full position.
What this subject contains
8 ways the rules work here
Both childcare schemes stop in full at the same round number, with no taper, and the test is applied to each parent separately. Because the threshold is adjusted net income, the contribution that recovers the personal allowance can restore the childcare in the same move, which is the single largest interaction on this site.
Giving up contractual cash pay in return for a non-cash benefit reduces the pay that tax and National Insurance are charged on. Unlike relief claimed on a contribution made from net pay, it saves employee National Insurance as well as income tax, and it reduces the employer's bill too.
A Gift Aid donation lets the charity reclaim basic rate tax, and lets a higher rate taxpayer reclaim the difference. Less well known is the second effect: the grossed-up donation reduces adjusted net income, which is the figure the taper and the childcare threshold are both tested on.
Where one spouse or civil partner earns below the personal allowance and the other is a basic rate taxpayer, part of the unused allowance can be transferred. It can be backdated across several closed tax years.
Child Benefit is clawed back through the tax return of the higher earner in the household once their income passes a threshold, and is fully withdrawn by a second one. The charge falls on one person's income even though the benefit is paid to the household.
Repayment is a share of income above a plan-specific threshold, and it stacks on top of income tax and National Insurance. For anyone repaying, the real marginal rate on a pay rise is higher than any published tax band shows.
Bonuses commonly land between December and March, which is also when a household's income for the year becomes final. A bonus that carries income across the taper or the childcare line costs far more than its own marginal rate, and the decision about where it goes is usually available before it is paid.
These are the ones that belong to this subject. The whole map, across all six, is on every key way to build wealth.
The figures underneath
What this subject rests on
Income tax rates and bands in England, Wales and Northern Ireland.
Nil to £12,570, 20% to £50,270, 40% to £125,140, then 45%
GOV.UK, Income Tax rates and Personal Allowances · 2026 to 2027 tax year · checked again by 2027-03-01
Scotland sets its own bands and rates.
How the personal allowance is withdrawn above £100,000.
£12,570, reduced by £1 for every £2 of adjusted net income above £100,000, and nil at £125,140
GOV.UK, Income Tax rates and Personal Allowances · 2026 to 2027 tax year · checked again by 2027-03-01
Produces an effective 60% marginal rate on income between £100,000 and £125,140 in England, Wales and Northern Ireland. Scottish rates differ.
What adjusted net income is, and what reduces it.
Total taxable income before personal allowances, less certain reliefs including pension contributions and Gift Aid
GOV.UK, High Income Child Benefit Charge · 2026 to 2027 tax year · checked again by 2027-03-01
Includes foreign income. It is not the same as gross salary or taxable pay.
The income at which Child Benefit starts to be clawed back.
1% of Child Benefit for every £200 of adjusted net income over £60,000, and all of it at £80,000
GOV.UK, High Income Child Benefit Charge · From the 2024 to 2025 tax year · checked again by 2027-03-01
Free childcare for working parents in England, and the income at which it is lost.
30 hours a week for 38 weeks, ages 9 months to 4 years. Lost if either parent's adjusted net income is over £100,000
GOV.UK, Free Childcare for Working Parents · 2026 to 2027 tax year · checked again by 2027-03-01
England only. Scotland, Wales and Northern Ireland run different schemes with different rules.
The Tax-Free Childcare top-up, and the income at which it is lost.
£2 for every £8 paid in, up to £2,000 per child a year (£4,000 if disabled), to age 11. Lost if either parent's adjusted net income is over £100,000
GOV.UK, Tax-Free Childcare · 2026 to 2027 tax year · checked again by 2027-03-01
Cannot be held at the same time as Universal Credit or childcare vouchers. Runs UK-wide, unlike the free hours.
Annual income thresholds and deduction rates for student loan repayment.
Plan 1 £26,900, Plan 2 £29,385, Plan 4 £33,795, Plan 5 £25,000, each at 9%; Postgraduate Loan £21,000 at 6%
GOV.UK, rates and thresholds for employers · 2026 to 2027 tax year · checked again by 2027-03-01
Written so far
Writing held
The 8 mechanisms above are stated and the 7 figures under them are in the ledger with sources and dates. Long-form articles are still in draft; nothing ships without a named reviewer, so we publish fewer than two dozen pieces a year.
The Swealth letter
One letter a week, on Thursday
Plain writing about British money, and the UK Wealth Blueprint to start with.