Many people don’t realise the impact of earning over £100,000.
Here are a couple things you need to know
Personal Allowance – Tax Code
Your Personal Allowance goes down by £1 for every £2 that your adjusted net income is above £100,000. This means your allowance is zero if your income is £125,000 or above.
You’ll also need to do a Self Assessment tax return.
Pension Allowance Reduction
To work out if you have a reduced (tapered) annual allowance for a tax year, you’ll need to work out your:
# net income in that tax year
# pension savings in that tax year
# threshold income in that tax year
# adjusted income in that tax year
If your adjusted income is over £150,000 your annual allowance in the same tax year will be reduced.
It will not be reduced if your threshold income for that year is £110,000 or less, no matter what your adjusted income is.
For every £2 your adjusted income goes over £150,000, your annual allowance for that year reduces by £1. The minimum reduced annual allowance you can have is £10,000.
Whichever type of pension scheme you’re in (for example, a career average scheme), you’ll need to know your pension savings so you can work out both your:
# threshold income
# adjusted income
If the pension savings made in the tax year are more than your available annual allowance, you should include the excess amount on your Self Assessment return. Your available annual allowance is your reduced annual allowance plus any unused allowance from the previous 3 tax years.
This amount is added to your taxable income and you will pay Income Tax on it, at the tax rate that applies to you.
The adjusted income includes your pension contributions and for final salary or career schemes pension contributions are the increase in scheme value