Don’t Lose Your 2020/21 Personal Allowance

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Don’t Lose Your 2020/21 Personal Allowance

For every £2 that your adjusted net income exceeds £100,000 the £12,500 personal allowance is reduced by £1. Pension contributions and Gift Aid donations can help to reduce adjusted net income and save tax at an effective rate of 60%.

The restriction applies between £100,000 and £125,000 adjusted net income. Another way that you could avoid this trap would be to agree with your employer to sacrifice some of your salary in exchange for a tax-free benefit in kind such as an additional pension contribution. If you are a director of an owner managed business you may consider pension contributions rather than extracting the money as dividends or salary, subject to the pension limits.