Tax implications of earning over £100K

high earner

Earning a six-figure salary is an exceptional feat, providing a sense of financial security and abundance. However, it’s important to note that a higher income can lead to complicated tax affairs. There are various tax implications of earning over £100K so let’s have a look at them.

One of the main tax implications of earning over £100K is that you start losing your personal tax allowance. In the UK, everyone is entitled to a personal tax allowance, which is currently set at £12,570. This means that you can earn up to this amount without having to pay any tax.

However, if you earn more than £100K, your personal allowance will gradually be reduced until it reaches zero. This means that you will pay income tax on your entire income.  Once you have reached £100K, every £2 you earn over £100K, you will lose £1 of your personal allowance.

Let’s dive into an example together! Things can get a little confusing, but don’t worry, we’ll work through it step by step.

Example of earning over £100K and the tax implications


Let’s say you are earning £105K. Based on the rule that for every £2 you earn over the £100k limit, you’ll lose £1 of your tax-free allowance, this means you’ll lose £2,500 of your tax-free allowance. So you will effectively be taxed at 40% on the £2,500 lost.

Your tax liability on the extra £5,000 will be £3,000 calculated as follows:

  • 40% on £5,000 = £2,000
  • 40% on £2,500 (allowance lost) = £1,000

You are paying tax at 60%.  This comes as a shock to most people when they first hear about it.

It’s important to appreciate that this will continue until you earn over £125,140, at which point you’ll have lost all your tax-free allowance. After that, you’ll be paying tax at 45%. You are paying tax at 60% on everything between £101,000 and £125,140.

It’s important to note that the rates in Scotland are different, so the figures mentioned here only apply if you are living in England, Wales, or Northern Ireland.

Top tip: you can make pension contributions or gift aid payments to help reduce the taxable income.


Will I need to complete a tax return if I earn over £100K

Previously, if you earned more than £100k, you were required to register for Self-Assessment and file a tax return. This was necessary to calculate your total tax liability for the tax year, including any other sources of income like interest and dividends.

But things have changed now.  For the tax year just finished (2023-24) and going forward you don’t have to worry about completing a Tax Return unless you are earning more than £150K. If you have sources of income other than employment or PAYE income, you will probably need to register for Self-Assessment. Here’s a guide to when you must send a self assessment tax return


Check your PAYE code

Well, how do I know if I have paid the right amount of tax you ask?  Well, the short answer is if your PAYE Code is correct then there is a high chance you will have paid the right amount of tax.  Remember it is your responsibility to make sure your code is correct.  It is not your employer’s issue.

You should always check your PAYE Code, especially at this time of the year.  The standard PAYE Code is 1257L if you are entitled to the full personal allowance and have no other adjustments.  Your PAYE Code should be on your monthly payslip.

If you are earning over £100K your tax code should not be 1257L, it should be something different. In our example, it should be 1007L assuming there are no other adjustments.

Check your payslip and establish if the tax code is correct.  If not you need to speak to HM Revenue & Customs (HMRC) and get it changed.

When you realise that you were on the wrong tax code last year, get in touch with HMRC and they will send you a calculation.  If you do nothing HMRC will contact you once they have done their reconciliations. But you still need to check it.

The previous requirement to complete a Self-Assessment form when your income went over £100K made more sense.  There are tax implications of earning over £100K and Self-Assessment was the tool to address them.

Next Steps

As you can see there are several tax implications of earning over £100K. As a high earner, you may need to navigate various tax brackets, deductions, and credits, which can be challenging without proper guidance.

Seeking advice from experienced tax professionals and staying informed on tax regulations can help you make informed decisions and maximise your earnings.  You don’t have to struggle with complex tax issues alone, we have experts on hand.  Have a look at how we can help you with your tax.