£120k Salary Tax Planning: Maximize Take-Home Pay
At £120k, you have almost no personal allowance. See how pension contributions can save you £12,000+ in tax.
Understanding This Scenario
At £120,000, the tax trap has erased almost all of your personal allowance. With £20,000 over the £100k threshold, you've lost £10,000 of allowance (leaving just £2,570).
You're paying 60% effective tax on that entire £20,000 - that's £12,000 in extra tax compared to someone who kept their income at or below £100k.
Optimization Strategy
Strategy: Significant Pension Contribution
At this income level, pension contributions become extremely tax-efficient: - Contribute £20,000 via salary sacrifice to drop below £100k - Restore your full £12,570 personal allowance - Tax saving: approximately £12,000 - Plus 2% NI saving on the full amount
Even a partial contribution helps. Each £2 contributed restores £1 of personal allowance.
Consider: - Annual allowance for pension is £60,000 (2025-26) - If you can't contribute £20k, even £10k saves £6,000
Frequently Asked Questions
What's my effective tax rate at £120k?
Your marginal rate on income between £100k-£125k is effectively 60% (40% income tax + loss of personal allowance worth 20%). Above £125,140, it drops to 47% (45% + 2% NI).
How much should I contribute to my pension at £120k?
To fully escape the tax trap, contribute £20,000 (reducing taxable income to £100k). This saves approximately £12,000 in tax. Even partial contributions are highly tax-efficient.
What if I already contribute to a workplace pension?
Your workplace contributions count toward reducing taxable income. If you're already contributing 5%, that's £6,000 at £120k salary, leaving £14,000 more needed to reach £100k taxable income.