- You might be paying 62 per cent in taxes on a portion of your income
- Pension contributions and charity donations help you avoid the trap
- We calculate how much you will need to contribute or give away
The idea of paying £6 in income tax for every £10 you earn might seem overly punishing, but because of a quirk in the system, it is what de facto happens to some of your money if you earn more than £100,000 a year. While there are no secret recipes to avoiding this ‘trap’, you can mitigate its impact.
Once your adjusted net income is above £100,000 a year, your tax-free personal allowance of £12,570 shrinks by £1 for every £2 you earn, reaching zero once you get to £125,140. At this point, if you live in England, the effective tax rate on your earnings on the portion of your income above the £100,000 mark is 60 per cent – or 62 per cent if you account for national insurance (NI),