What is Adjusted Net Income under Section 58 ITA 2007
In the United Kingdom, Adjusted Net Income (ANI) is a statutory measure defined by Section 58 of the Income Tax Act 2007. It is not identical to your headline gross salary or total taxable income. Instead, it represents your total taxable income from all sources minus allowable trading losses, gross personal pension contributions, and grossed-up Gift Aid donations.
Adjusted Net Income is the critical metric used by HM Revenue and Customs (HMRC) to determine key tax thresholds, including the tapering of the Personal Allowance above £100,000, the High Income Child Benefit Charge (HICBC) between £60,000 and £80,000, and eligibility for Tax-Free Childcare.
The £100,000 Personal Allowance taper and 60% tax trap
Every UK resident is entitled to a standard tax-free Personal Allowance of £12,570. However, under Section 35 of the Income Tax Act 2007, your Personal Allowance is reduced by £1 for every £2 of adjusted net income exceeding £100,000.00.
When your adjusted net income reaches £125,140.00, your Personal Allowance is completely eroded to £0.00. Because you lose £1 of allowance for every £2 earned, the effective marginal Income Tax rate between £100,000 and £125,140 jumps to 40% tax plus 20% lost allowance tax, creating a punishing 60% marginal tax rate before National Insurance is added.
Worked example of Personal Allowance clawback
Suppose an individual receives a gross employment salary and bonus totaling £105,000.00 in the 2026-27 tax year with no allowable deductions. Their adjusted net income is £105,000.00, which exceeds the £100,000.00 threshold by £5,000.00.
Under the £1 for £2 rule, their Personal Allowance is reduced by £2,500.00 (half of £5,000.00), leaving an effective Personal Allowance of £10,070.00. Making a £5,000.00 gross pension contribution would reduce their adjusted net income back down to £100,000.00, completely restoring the £12,570.00 Personal Allowance and saving £2,000.00 in Income Tax.
Impact on Tax-Free Childcare and 30 hours funded childcare
Adjusted Net Income also governs eligibility for government childcare schemes. If either parent in a household has an adjusted net income exceeding £100,000.00 by even £1, the family is entirely disqualified from receiving Tax-Free Childcare (worth up to £2,000 per child per year) and 30 hours of free childcare for 3 and 4-year-olds.
Because this is a strict cliff-edge rather than a gradual taper, earning £100,001.00 can instantly cost a family thousands of pounds in lost childcare support. Salary sacrifice and pension contributions can keep adjusted net income at or below £100,000.00 to preserve these benefits.
To see your overall Income Tax and take-home pay, use our UK income tax calculator.
To calculate the High Income Child Benefit Charge clawback, check our UK child benefit tax calculator.
To plan pension deductions that reduce income below £100,000, visit our UK salary sacrifice calculator.
Inputs for the adjusted net income calculator
Tax year
The relevant UK tax year running from 6 April to 5 April, which sets the statutory Personal Allowance and tax bands.
Employment income (salary & bonus)
Gross earnings from employment before tax and deductions, including bonuses, overtime, commissions, and taxable benefits-in-kind from form P11D.
Self-employed trading profits
Net taxable profits from sole trader businesses or partnerships after deducting allowable business expenses and capital allowances.
Other taxable income
Other taxable income including company dividends, net rental profits, taxable bank interest, occupational pensions, and state benefits.
Allowable trading losses & deductions
Qualifying allowable deductions such as trade losses brought forward or allowable employment expenses not reimbursed by employers.
Gross personal pension contributions
Personal pension payments made under relief at source, grossed up by 20% (for example, an £8,000 net payment equals £10,000 gross).
Gift Aid donations (net paid)
Net donations made to registered charities under Gift Aid during the tax year, which HMRC grosses up by 25%.
CALCULATOR QUESTIONS
Adjusted net income questions
What is Adjusted Net Income under Section 58 ITA 2007?
Adjusted Net Income is your total taxable income (salary, bonuses, trading profits, pensions, dividends, and rental income) minus certain tax reliefs, primarily gross personal pension contributions (relief at source contributions grossed up by 25%) and grossed-up Gift Aid donations to charity.
How does Adjusted Net Income affect my Personal Allowance?
If your adjusted net income exceeds £100,000, your tax-free Personal Allowance (£12,570) is reduced by £1 for every £2 of income above £100,000. It reaches zero once your adjusted net income reaches £125,140.
Why is the tax rate between £100,000 and £125,140 effectively 60%?
For every £100 earned in this band, you pay £40 in higher rate Income Tax. In addition, losing £50 of your tax-free Personal Allowance causes another £50 to be taxed at 40%, costing an extra £20 in tax. Combined, you lose £60 in Income Tax per £100 earned, resulting in a 60% effective marginal tax rate before National Insurance.
How does Adjusted Net Income affect Tax-Free Childcare and 30 hours funded childcare?
If either parent in a household has an adjusted net income over £100,000, the family is completely disqualified from receiving Tax-Free Childcare (worth up to £2,000 per child per year) and 30 hours funded childcare for 3 and 4-year-olds. This is a strict cliff-edge threshold.
Can I reduce my Adjusted Net Income using pension contributions?
Yes. Gross contributions made into a personal pension (relief at source or SIPP) directly reduce your adjusted net income pound-for-pound. For example, if your income is £105,000, paying £4,000 net into a SIPP adds £1,000 basic rate relief (£5,000 gross deduction), bringing your adjusted net income down to £100,000 and completely restoring your £12,570 Personal Allowance.