The personal allowance reduces by £1 for every £2 of adjusted net income above £100,000, meaning your tax-free amount shrinks as income increases.

Adjusted net income includes all taxable income (e.g., salary, business profits, dividends) minus deductions like pension contributions and Gift Aid donations.

Once your income reaches £125,140, your personal allowance is completely lost, so you pay tax on all your earnings above zero.

This rule affects both employed and self-employed individuals, including business owners, contractors, and professionals across the UK.

If you're married or in a civil partnership, each person's allowance is assessed separately based on their own income.

Pension contributions can lower your adjusted net income, helping you retain more of your personal allowance and reduce tax bills.

Gift Aid donations to charity also reduce adjusted net income for this calculation, providing a tax-efficient way to support causes.

The loss is calculated automatically in your Self Assessment tax return, but you need to report income accurately to avoid errors.

Failing to account for this can lead to unexpected tax bills, penalties, and stress, especially for high-earners in Lymington and Hampshire.

Planning ahead with income forecasting is crucial if you have variable earnings, such as from bonuses or business profits.