Earning over £100k
What to do if you earn over £100k.
Earning over £100k should be a reason to celebrate – if only you weren’t paying a higher tax rate than everyone else!
What to do if you earn over £100k.
Everyone is entitled to an amount of money that’s tax-free, called the Personal Allowance, which is worth £12,570 in the 2023/24 tax year. Over this, you pay tax in bands, ranging from 20% to 45% on your taxable income (more on this later).
Once you earn over £100,000, you start losing your tax-free Personal Allowance – one pound of allowance per every two pounds over the £100,000 threshold, until you hit £125,140 and you have no personal allowance remaining.
This works out as an income tax rate of 60% for the income between £100,000 and £125,140. And this doesn’t include National Insurance – that’s another 2% on top.
What can I do to minimise exposure to this higher rate of tax?
01
Save more into your pension. Saving for retirement might be the last thing on your mind at the moment, however it is one of the best ways to cut your tax bill. So how much can you save into your pension a year? It all depends on how much you earn:
- If you earn under £260,000 a year: you can save up to £60,000 into your pension, and get back the whole amount of tax on it. Your pension provider will help you get back a portion of that automatically, and you can get the rest by filing a Self Assessment tax return
- The annual allowance reduces or 'tapers' for people with an adjusted income over £260,000 and a threshold income over £200,000; For every £2 you earn above the threshold, your annual allowance reduces by £1 until it reaches a floor of £10,000
- For those with 'defined benefit', or 'final salary', pensions, the annual allowance is more complicated, as these pensions are designed to give you a guaranteed income for life
- From 6th April 2024, the Lifetime Allowance (LTA) is being abolished, meaning there will be no cap on how much you can build up in pension benefits while continuing to get tax relief
02
Donate to charity and claim the Gift Aid tax relief
Charitable donations
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Everyday Tips03
Claim for allowable costs on your tax return; Make sure you’re claiming for all allowable costs on your tax return. This includes any professional subscriptions, uniform costs, and tax relief on mileage if you do not claim for mileage via your employer.
04
Look for tax efficient investments
There are three startup investment schemes in the UK:
- The Seed Enterprise Investment Scheme (SEIS)
- The Enterprise Investment Scheme (EIS)
- The Venture Capital Trust (VCT)
You must file a Self Assessment in order to reclaim tax on these investments.
Changes from April 2023
For the 2022/23 tax year income over £150,000 is taxed at 45%. However from April 2023, this is reducing to £125,140.
What you need to do now:
- Contribute to your pension
- Register for Self Assessment
- File your Self Assessment before 31st January of the tax year following your investment so you don’t lose your tax relief
Tax rates relevant as at March 2023.
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