For high earning taxpayers the personal allowance is gradually reduced by £1 for every £2 of adjusted net income over £100,000 irrespective of age. This means that any taxable receipt that takes income over £100,000 will result in a reduction in personal tax allowances.
Your adjusted net income is your total taxable income before any personal allowances, less certain tax reliefs such as trading losses and certain charitable donations and pension contributions.
This means that for the current tax year if your adjusted net income is likely to fall between £100,000 and £125,000, you would pay an effective marginal rate of tax of 60% as your £12,500 tax-free personal allowance is gradually withdrawn. If your income sits within this band, you should consider what tax planning opportunities are available in order to avoid this personal allowance trap by trying to reduce your income below to £100,000. This can include giving gifts to charity, increasing pension contributions and participating in certain investment schemes.
A higher rate or additional rate taxpayer who wanted to reduce their tax bill could make a gift to charity in the current tax year and then elect to carry back the contribution to 2018-19. A request to carry back the donation must be made before or at the same time as the 2018-19 Self-Assessment return is completed (by 31 January 2020).