The Tax Threshold You Have Probably Never Heard Of

Most people earning between £100,000 and £125,140 have never heard of it. Many are paying more tax than they need to as a result.

Here is what you need to know.

What Is Marginal Relief?

Marginal relief is a reduction in your income tax bill if your income falls into the gap between £100,000 and £125,140.

The problem: for every £2 you earn above £100,000, your personal allowance reduces by £1. Your personal allowance is the amount you can earn before paying any income tax — currently £12,570.

This means if you earn £110,000, you lose £5,000 of your personal allowance (£10,000 over £100,000 ÷ 2 = £5,000 reduction). At a 40% tax rate, that lost allowance costs you £2,000 extra in tax.

The maths makes it feel like you are paying a much higher rate than 40% on the income above £100,000. In some cases, effective tax rates reach 60%.

Marginal relief reduces this sting. It is a credit applied to your tax bill that narrows the gap between your actual tax and what you would pay without the personal allowance reduction.

Who Does It Apply To?

Marginal relief applies if your adjusted net income is between £100,000 and £125,140.

Adjusted net income is your total income minus certain deductions:

• Gift Aid donations
• Personal pension contributions
• Trading losses

If your income sits in this range and you are making pension contributions or charitable donations, you may be entitled to marginal relief — even if you are not sure you qualify.

New vs Old Tax Regime: What Changed

The personal allowance has existed since 1999/2000. The income-driven reduction above £100,000 was introduced in 2010 and has continued through successive governments.

The current numbers (2025/2026 tax year):

The personal allowance disappears completely once income exceeds £125,140.

How It Affects Your Tax Bill Practically

Here is a real example.

Sarah earns £115,000. Her salary puts her firmly in the "successful professional" category. She contributes £5,000 to her pension annually.

Without marginal relief, her tax calculation looks like this:

With marginal relief, the calculation adjusts to account for the lost personal allowance. The credit reduces the effective cost of that taper.

The difference can be worth £500-£2,000 depending on your exact income and deductions.

Who Benefits Most?

Marginal relief is most valuable for:

1. People with pension contributions

If you are salary sacrifice or making personal pension contributions, these reduce your adjusted net income and can push you into marginal relief territory — or increase the relief you receive.

2. High earners with charitable giving

Gift Aid donations also reduce adjusted net income, potentially qualifying you for relief or increasing it.

3. Anyone earning between £100,000 and £125,140

If this is your income range and you are not making pension contributions or donations, you are likely paying more tax than necessary. The relief exists but you have to claim it — it is not automatic in all cases.

The One Thing to Do This Week

If your income is between £100,000 and £125,140, check whether you are making the most of pension contributions or salary sacrifice.

Increasing your pension contribution by £1,000 could reduce your tax bill by £400-£600 depending on your exact situation. That is a better return than most savings accounts.

If you are already maxing your pension contributions, check whether Gift Aid donations could increase your marginal relief.

If you have a salary, pension, and investments, Delphina helps you see your complete financial picture — including whether you are paying more tax than you need to.