Income over £100,000 – The trap! The 60% tax band. People with income of over £100,000 start to lose their personal allowance by £1 for every £2 of income above £100,000. This means an effective rate of tax on income between £100,000 and £125,140 of 60%. (See the pensions section below on how to get this back). You are required to complete a tax return if you earn above £100,000pa and your tax code is altered accordingly, or a tax demand sent. Loss of free childcare You will lose all free childcare hours if you earn above £100,000 whereas someone earning £99,999 can still have the 30 hours free so £2 increase could cost you thousands. This can have a big impact for those with children in nursery and might be something to consider if a pay rise or bonus is on the table, or if you are debating taking an extra dividend from the company, maybe hang fire. It might only be a £1000.00 pay rise and yet could cost you thousands in nursery fees. Can you take a pension payment instead of the bonus which would keep your income below £100,000? For someone with free nursery hours earning say £98,000 and their income goes above £100,000 with overtime or a bonus, the effect is disastrous. They would lose their nursery hours completely which could be worth a lot more than the pay rise and they will also be hit with a 60% effective tax rate above the £100,000. Net income and disposable income after expenses would be dramatically impacted! If you’re over your annual pension allowance (an NHS consultant perhaps) and cannot pay into a pension to improve the situation, then this is a major headache. It's one to plan for and one to make sure you have done everything you can. Speak to the team on how to help. Additional rate taxpayers Currently the 45% tax rate is only charged on income above £150,000. As of April 2023, this will reduce to apply to income above £125,140. Due to the reduction or loss of the personal allowance between £100,000 and £125,140 this means that someone earning or having income of (for example) £140,000 would pay 40% on income between £50,270 to £100,000, an effective rate of 60% on income between £100,000 and £125,140 and then 45% above this figure. Pension contributions for those who haven’t maximised their annual allowances and are in this bracket are a must.