Personal Allowances: adjusted net income

What adjusted net income is

Adjusted net income is total taxable income before any Personal Allowances and less certain tax reliefs, for example:

• trading losses
• donations made to charities through Gift Aid — taking off the ‘grossed-up’ gift-aid amount
• pension contributions paid gross (before tax relief)
• pension contributions where your pension provider has already given you tax relief at the basic rate — take off the ‘grossed-up’ amount

When your tax liability can be affected by adjusted net income

Your adjusted net income will affect your tax if any of the following apply. You are liable to the:

• income-related reduction to the Personal Allowance — where you have an adjusted net income over £100,000 (regardless of your date of birth)
• High Income Child Benefit Charge — where you have an adjusted net income above £60,000

How to work out your adjusted net income

Work out your adjusted net income by following steps 1 to 4.

Step 1 — work out your ‘net income’

Add up your taxable income.

Include things like:

• money you earn from employment (including any benefits you get from your job)
• profits you make if you’re self-employed including from services you sell through websites or apps
• some state benefits
• most pensions (including the State Pension, company and personal pensions and retirement annuities)
• interest on savings and pensioners bonds
• dividends from company shares
• some rental income
• income from a trust

Take off any tax reliefs that apply like:

• payments made gross to pension schemes — those that have been made without tax relief
• trading losses, for example trade loss relief or property loss relief

This is your ‘net income’.

Your net income is then adjusted — using steps 2 to 4, as follows.

Step 2 — take off Gift Aid donations

If you made a Gift Aid donation, take off the ‘grossed-up’ amount — what you paid plus the basic rate of tax.

So, for every £1 of Gift Aid donations you made, take £1.25 from your net income.

Step 3 — take off pension contributions

If you made a contribution to a pension scheme where your pension provider has already given you tax relief at basic rate, take off the ‘grossed-up’ amount — what you paid plus the basic rate of tax.

So, for every £1 of pension contribution you made, take £1.25 from your ‘net income’.

Step 4 — add back tax relief for payments to trade unions or police organisations

Tax relief of up to £100 is available if you make payments to a trade union or police organisation for superannuation, life insurance or funeral benefits.

If you took off an amount for this type of payment at step 1, add it back.

Adjusted net income examples