£120,000 Salary Breakdown (2025/2026)

The Personal Allowance Taper Explained

With a salary of £120,000, you have lost almost all of your tax-free Personal Allowance. For every £2 earned above £100,000, your allowance reduces by £1.

At £120,000, your Personal Allowance has dropped from £12,570 to just £2,570. This drastically increases your taxable income.

The 60% Effective Tax Rate

The reduction of your Personal Allowance creates an effective tax rate of 60% on the £20,000 you earn between £100k and £120k. This is because you pay 40% tax on the income itself, plus an extra 20% tax on the allowance you have lost.

Tip: Contributing to a pension is highly effective here. Putting £20,000 into a pension would restore your full Personal Allowance and give you immediate 40-60% tax relief.

Nearing the Additional Rate

You are very close to the Additional Rate threshold of £125,140. Once you cross that line, you will pay 45% Income Tax on every extra pound, and your Personal Allowance will be fully wiped out (zero).

Student Loan Impact

Student loan deductions at £120k are substantial:

  • Plan 1: ~£8,450/year (~£704/month).
  • Plan 2: ~£8,230/year (~£686/month).
  • Postgraduate: ~£5,940/year (~£495/month).