Introduction
Cross £100,000 of income in the UK and something strange happens. You do not enter a new tax band, yet the tax taken from your next slice of income jumps sharply. The figure that triggers this is your adjusted net income, and it is not the same thing as your salary.
Adjusted net income is the measure HMRC uses, and it quietly governs more than one threshold. It decides whether you keep your Personal Allowance. It decides whether you can claim Tax-Free Childcare. For anyone building a portfolio, the useful part is this: the test does not see every pound you hold. Some accounts feed it, and some are invisible to it.
This article sets out which money counts towards the figure, which does not, and how the three wrappers a UK investor is most likely to hold behave when the £100,000 line comes into view.
This article is for education and general information. It is not financial advice and does not take account of your personal circumstances. Tax rules depend on individual circumstances and may change. The value of investments can fall as well as rise, and you may get back less than you put in.
Quick Answer: What Adjusted Net Income Actually Measures
Adjusted net income is your total taxable income before allowances, less reliefs such as grossed-up pension contributions and Gift Aid. Above £100,000 it strips your Personal Allowance by £1 for every £2. ISA income and gains are not taxable income, so they never enter the calculation at all.
The £100,000 Cliff Edge, And Why It Bites Twice
The Personal Allowance for the 2026/27 tax year is £12,570. GOV.UK states that it falls by £1 for every £2 of adjusted net income above £100,000, which means it disappears entirely once the figure reaches £125,140.
That withdrawal is why the band bites twice. Every extra £1 you earn in that range is taxed at the higher rate, and it also drags 50p of previously tax-free allowance into tax. In England, Wales and Northern Ireland the result is an effective marginal rate of 60% on income between £100,000 and £125,140, even though no band on the official rate table says 60%.
Scottish taxpayers face a steeper version. The Scottish advanced rate of 45% applies from £75,001 to £125,140, so the same double effect produces an effective marginal rate of 67.5% across that stretch. Above £125,140 the allowance is already gone, so the rate falls back to the headline additional or top rate.
Effective marginal tax rate by income, England, Wales and Northern Ireland, 2026/27
Source: GOV.UK Income Tax rates and Personal Allowances. England, Wales and Northern Ireland. Verified 31 August 2026.
60% Effective Rate In England, Wales And Northern Ireland
Between £100,000 and £125,140, each extra £1 of income costs 40p in tax plus 20p from the allowance you lose. Verified against GOV.UK rates on 31 August 2026.
67.5% Effective Rate In Scotland
The Scottish advanced rate of 45% applies across the same stretch, so the lost allowance costs 22.5p on top of the 45p. Verified against gov.scot on 31 August 2026.
£125,140 Is Where The Allowance Reaches Zero
Above that point there is no allowance left to withdraw, so the marginal rate drops back to the headline rate for your band.
Which Money The Adjusted Net Income Test Counts
HMRC builds the figure from taxable income, then subtracts a short list of reliefs. The practical consequence for investors is that where you hold an asset changes whether its returns show up in the test at all.
| Money you receive or hold | Does it count towards adjusted net income? |
|---|---|
| Salary, bonus and self-employed profit | Yes, in full. |
| Taxable pension income you draw | Yes. Drawdown income and the State Pension are taxable income. |
| Savings interest held outside an ISA | Yes. It appears in the HMRC list of taxable income. |
| Dividends held outside an ISA | Yes. It appears in the HMRC list of taxable income. |
| Rental and foreign income | Yes. Both are listed in step one of the calculation. |
| Interest, dividends and gains inside an ISA | No. These are not taxable income and are not declared on a tax return. |
| Capital gains realised outside an ISA | No. Capital gains are charged separately and do not appear in the income steps. |
| Personal pension contributions with relief at source | They reduce it. Deduct the grossed-up amount, £1.25 for every £1 paid in. |
| Gift Aid donations | They reduce it. Deduct the grossed-up amount, £1.25 for every £1 donated. |
Source: GOV.UK guidance on adjusted net income and how ISAs work. Verified 31 August 2026.
The pattern is consistent. Anything taxed as income counts. Anything sheltered inside an ISA is not taxable income in the first place, so there is nothing for the test to pick up. GOV.UK is explicit that if you complete a tax return, you do not need to declare ISA interest, income or capital gains on it.
Not sure which wrapper your money should sit in? Compare UK platforms side by side.
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How Each Wrapper Is Treated
Three wrappers dominate a typical UK portfolio, and each behaves differently when the £100,000 line comes into view.
A Stocks and Shares ISA is the only one of the three that is genuinely invisible to the test. Interest, dividends and capital gains inside the wrapper are free of UK income tax and capital gains tax, and they do not need to be declared. A portfolio throwing off £8,000 of dividends inside an ISA adds nothing to your adjusted net income. The same portfolio held in a general investment account adds the full £8,000.
A pension or SIPP works in the opposite direction, and that is exactly what makes it useful here. Money you pay in reduces the figure, so it can pull you back below £100,000. Money you later draw out is taxable income, so it pushes the figure up again in retirement. The wrapper does not remove income from the tax system, it moves it to a different point in your life.
A general investment account has no shelter at all. Dividends and interest are taxable income and count in full. Capital gains sit outside the income calculation, but they carry their own tax, which is a separate question from the £100,000 threshold.
What Pension Contributions Do To Adjusted Net Income
This is the lever most people can actually pull. Because a personal pension contribution paid with relief at source is deducted at its grossed-up value, paying into a pension can move your adjusted net income back below the threshold and restore the allowance you were losing.
Take someone in England on a £110,000 salary with no other income in the 2026/27 tax year. Their adjusted net income is £110,000, which is £10,000 over the line, so they lose £5,000 of Personal Allowance and keep £7,570 of it.
Now suppose they pay £8,000 into a personal pension. The provider adds £2,000 of basic rate relief, so £10,000 goes into the pension. Adjusted net income falls to £100,000 and the full £12,570 allowance is restored.
Two things happen at once. The restored £5,000 of allowance is £5,000 no longer taxed at 40%, worth £2,000. Separately, the contribution extends the basic rate band, reclaiming a further £2,000 through Self Assessment. The £10,000 sitting in the pension has cost £4,000 net.
£10,000 Into The Pension For £4,000 Net
In this example, higher rate relief plus a restored Personal Allowance covers 60% of the contribution. The exact figure depends on your own income and where in the UK you live.
One limit is worth knowing before you plan around this. The annual allowance caps pension contributions at £60,000 in the 2026/27 tax year, and it tapers for very high earners: where threshold income is over £200,000 and adjusted income is over £260,000, the allowance falls by £1 for every £2 of adjusted income above £260,000, down to a floor of £10,000.
The Access Trade-Off Behind The Tax Saving
The pension route is efficient, but it is not free. Money paid into a pension is locked away, and GOV.UK states that taking money from a personal or workplace pension is usually only possible after you are 55. An ISA carries no such restriction. You can take money out whenever you like, and doing so creates no taxable income at all.
That difference matters more than the headline tax rate for anyone who might need the money before their late fifties. A contribution that saves £4,000 in tax is a poor trade if it locks up a house deposit you need in three years.
There is also an asymmetry worth holding onto. Pension contributions reduce adjusted net income now and increase taxable income later. ISA money never touches the figure in either direction. If you expect to sit near an income threshold in retirement as well as during your working life, that permanence is worth something. We looked at a live example of this in our piece on why ISA income does not count towards the Winter Fuel Payment clawback.
Who Should Use Which Wrapper
There is no single right answer, and the sensible order depends on your income, your timescale and how close you are to a threshold.
If your adjusted net income sits comfortably below £100,000, the threshold is not your problem and the usual considerations apply: keep costs low, use the £20,000 ISA allowance for the 2026/27 tax year, and pick a platform that suits how often you actually trade. Our broker matcher is a reasonable starting point if you are still deciding.
If you are hovering just above £100,000, a pension contribution sized to bring the figure back to the line is the most direct tool available, provided you can afford to lock the money away. Anything beyond that is a judgement call about access rather than about tax.
If you already hold investments outside a wrapper, moving them into an ISA over time removes their income from the calculation permanently. Existing ISA money can be consolidated too: see our guides to transferring an ISA and how many ISAs you can hold.
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Frequently Asked Questions
Key Takeaways
Adjusted Net Income Is Not Your Salary
It is total taxable income before allowances, less grossed-up pension contributions and Gift Aid. Two people on identical salaries can end up with very different figures.
The £100,000 Line Costs More Than It Looks
The effective marginal rate reaches 60% in England, Wales and Northern Ireland, and 67.5% in Scotland, across the range up to £125,140.
ISA Money Is Invisible To The Test
Interest, dividends and gains inside an ISA are not taxable income, so they never push you towards the threshold, in any tax year.
Pensions Are The Direct Lever, With A Lock-In
Contributions reduce the figure now and restore allowance, but the money is usually not accessible until 55. Weigh the tax saving against when you need the cash.
Sources: GOV.UK Income Tax rates and Personal Allowances; GOV.UK adjusted net income guidance; GOV.UK how ISAs work; GOV.UK tapered annual allowance guidance; gov.scot Scottish Income Tax rates and bands 2026 to 2027; GOV.UK Tax-Free Childcare eligibility. All verified 31 August 2026.
This article is for education and general information. It is not financial advice and does not take account of your personal circumstances. Tax rules depend on individual circumstances and may change. The value of investments can fall as well as rise, and you may get back less than you put in.
