Why You’re Losing Your £12,570 Personal Allowance

In the UK tax system, most workers benefit from the £12,570 Personal Allowance – the amount of income you can receive each tax year without paying income tax. For the current and 2026/27 tax years, this allowance is set at £12,570, meaning you don’t pay income tax on the first £12,570 you earn.

However, for those earning above £100,000, a less‑well‑understood rule gradually reduces this allowance. Many high earners see the tax‑free benefit shrink and ultimately disappear completely before they even enter the highest tax band. This hidden effect increases the marginal tax they pay and can make additional income significantly less rewarding.

Below, we break this down and explain what it really means for your take‑home pay, who gets affected, why it exists and how some people manage or mitigate it.

How the Personal Allowance Taper Works

What the Rules Say

Personal Allowance for 2025/26 and 2026/27: £12,570.
Once your adjusted net income exceeds £100,000, your Personal Allowance is reduced by £1 for every £2 earned above this threshold. For a more detailed explanation, see what happens to your personal allowance above £100,000 income.
If your income reaches £125,140 or more, you lose the Personal Allowance completely.

If you want to know when do you lose your personal allowance actually, then the key point is that the taper starts once adjusted net income exceeds £100,000 and the allowance is fully removed at £125,140. This taper reduces your tax‑free income gradually, rather than all at once.

What “Adjusted Net Income” Means

Adjusted net income includes most taxable income, such as:

Salary or wages
Bonuses
Benefits from employment
Rental income
Some pension and savings income

Certain reliefs – like pension contributions or Gift Aid – can reduce your adjusted net income, which may affect how much allowance you lose. This is also relevant if you lose tax free allowance, as the taper is based on adjusted net income rather than salary alone.

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Why the Personal Allowance Taper Creates a 60% Tax Trap

When your Personal Allowance is tapered away, it effectively increases the tax you pay on extra income before you reach the additional rate.

Here’s how:

Between £100,000 and £125,140, any extra £1 of income is taxed at the higher rate of 40%.
At the same time, you lose £0.50 of Personal Allowance for every extra £1 earned above £100,000.
That lost £0.50 would otherwise be tax‑free, so it now becomes taxable at 40%.

Putting that together:

Component	Amount
Tax charged on extra £1 of income	40p
Value of allowance lost (£0.50 taxed at 40%)	20p
Total effective tax rate	60p per £1

Put another way: every extra £100 you earn above £100,000 can leave you with just £40 in extra take‑home pay.

If you also pay National Insurance contributions at 2%, the effective marginal rate can reach 62% on that slice of income.

This has become known in financial planning circles as the “£100,000 tax trap”.

Practical Example

Imagine you earn £100,000 and receive a £10,000 pay rise:

Income rise	Tax rate	Tax payable
Extra income taxed at 40%	40%	£4,000
50% allowance lost (£5,000) taxed at 40%	40%	£2,000
Total tax on £10,000 raise	–	£6,000
Take‑home from £10,000 increase	–	£4,000 (40%)

In this range, the effective marginal tax rate is 60%.

Impact of Frozen Thresholds

The most important contextual factor is that these thresholds have not increased with inflation for many years. The Personal Allowance and the £100,000 threshold have been frozen since the early 2020s and are set to remain unchanged until April 2031.

The result is fiscal drag:

More people get pulled into higher tax bands as wages rise with inflation.
Increasing numbers of professionals — including clinicians, teachers, engineers and managers — encounter this high marginal rate even if their real purchasing power hasn’t changed.

Estimates suggest over 2 million taxpayers will be affected by this trap in the current tax year.

Who Is Affected Most

This tapered Personal Allowance rule mainly affects:

Individuals with adjusted net income between £100,000 and £125,140
People receiving bonuses or irregular earnings within this range
Professionals combining salary with rental or investment income
Those whose income is creeping up due to inflation but have not moved into much higher tax bands

It’s not limited to employees — contractors, business owners and sole traders can be caught too.

How to Reduce the Impact of the Personal Allowance Taper

The most useful approach is to look at your expected adjusted net income before the end of the tax year and consider whether legitimate tax-planning opportunities could keep it below, or reduce the amount by which it exceeds, the £100,000 threshold. HMRC confirms that adjusted net income can take account of certain pension contributions, Gift Aid donations and allowable losses.

Rather than focusing only on your salary, consider the full picture. Bonuses, employment benefits, self-employment profits, dividends, rental income, savings income and pension income can all contribute to your taxable income.

Practical Planning Areas to Review

Check your projected income early – If your income is close to £100,000, calculate your expected adjusted net income before the end of the tax year. This can give you time to consider available reliefs rather than discovering the taper after your tax return is prepared.
Review pension contribution opportunities – Pension contributions can reduce adjusted net income where the relevant conditions are met. The method of contribution matters, and you should consider the pension annual allowance and your wider retirement position before making additional contributions.
Consider salary sacrifice through your employer – Where available, salary sacrifice can be relevant to tax planning because you exchange part of your salary for an eligible benefit. Pension salary sacrifice can be particularly relevant for employees whose income is approaching the taper range.
Review Gift Aid donations – If you already make charitable donations, check whether eligible Gift Aid payments have been included when calculating your adjusted net income. HMRC treats the donation as being increased by the basic-rate tax relief when making this calculation.
Review allowable losses and other reliefs – Trading and property losses may affect the calculation of adjusted net income in certain circumstances. These should be reviewed alongside the wider tax position rather than treated as a general-purpose way of reducing income.
Consider business investment where relevant – If you run a business and are planning to buy qualifying plant or machinery, capital allowances may provide tax relief against profits. From 1 January 2026, a new 40% First-Year Allowance is available for qualifying main-rate plant and machinery expenditure, subject to the relevant conditions. Read our guide to the 40% First-Year Allowance for more detail.

Plan Around the Whole Tax Year

The key is not to make a pension contribution, donation or business investment simply because your income is above £100,000. Each option has different rules, costs and financial consequences.

Instead, compare your projected adjusted net income with the £100,000 threshold and consider which measures genuinely fit your circumstances. For example, someone with employment income may look at pension contributions or salary sacrifice, while a business owner may also need to consider allowable losses and capital expenditure.

Professional tax planning can therefore involve looking at income, reliefs, investments and the timing of financial decisions together, rather than relying on one measure in isolation.

If your income is likely to move above £100,000, reviewing your position before the end of the tax year can give you more choices than waiting until your Self Assessment return is due.

Also Read:

https://apexaccountants.tax/how-to-increase-your-tax-free-personal-allowance-to-20070-through-hmrc-rent-a-room-scheme

Summary

The personal allowance taper can affect your tax position as income rises above £100,00 and that is why you’re losing your 12570 personal allowance.

You gradually lose your £12,570 tax‑free allowance.
This generates an effective 60% marginal tax rate between £100,000 and £125,140.
Frozen thresholds mean more taxpayers are affected over time.

Understanding these rules helps you with £12,570 personal allowance planning more effectively and avoid surprises at tax time.

How We Can Help With £12,570 Personal Allowance Planning

At Apex Accountants, we provide tailored personal tax services for high earners, professionals and businesses. Our expert services include:

Income tax planning and optimisation
Personal Allowance and marginal rate strategies
Pension and retirement tax planning
Tax‑efficient remuneration structuring
Year‑end planning and projections
Support with HMRC filings and compliance

We help you navigate complex tax rules, reduce liabilities within the law and maximise your take‑home income. Contact us today to build a smart, personalised plan for your finances.

Get Free Consultation

Call Anytime 0203 883 4777

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FAQs: Personal Allowance in the UK

1. What happens if you lose your Personal Allowance?

If you lose your Personal Allowance, your income becomes taxable from the first pound, making your effective tax rate higher. This typically happens if your income exceeds £100,000. This explains when you lose your personal allowance and why the amount of tax you pay can increase as your income rises.

2. Is Personal Allowance still £12,570?

Yes, the standard Personal Allowance is £12,570 for the 2025/26 and 2026/27 tax years. However, it’s gradually reduced if your income exceeds £100,000.

3. Why has my Personal Tax Allowance dropped?

Your Personal Allowance may drop if your income exceeds £100,000. For every £2 earned above this threshold, £1 of your Personal Allowance is lost, reducing your tax-free income.

4. How to regain Personal Allowance?

You can regain your Personal Allowance by reducing your adjusted net income. Options include contributing to pensions, making charitable donations through Gift Aid, or using salary sacrifice schemes.

5. Why has my Personal Allowance been tapered?

Your Personal Allowance is tapered if your adjusted net income exceeds £100,000. The taper reduces your tax-free allowance by £1 for every £2 earned above this threshold, resulting in a higher effective tax rate.

6. Has Personal Allowance changed from 2025-26?

The Personal Allowance for the 2025-26 tax year is set to remain at £12,570. There have been no increases due to frozen thresholds, and the rate will stay the same until 2031.

7. Is the HMRC considering raising Personal Tax Allowance from £12,570 to £20,000?

Currently, there are no official plans to raise the Personal Tax Allowance to £20,000. The government has frozen the allowance at £12,570 until 2031.

8. How much is the tapered annual allowance?

The tapered annual allowance is the amount by which your Personal Allowance is reduced once your income exceeds £100,000. For every £2 earned over this threshold, £1 of your allowance is lost.

9. How much tax will I pay on £12,570?

If £12,570 is your only taxable income for the tax year and you are entitled to the standard Personal Allowance, you would normally have no Income Tax to pay because your taxable income does not exceed the allowance. Your actual tax position can differ if you have other income or your personal allowance has been reduced.

10. Is the Personal Allowance changing in 2026?

The standard Personal Allowance remains £12,570 for the 2026/27 tax year. The allowance is not increased simply because the tax year has changed, so anyone whose income is close to or above the £100,000 threshold should also consider how the Personal Allowance taper affects their position.