What is Adjusted Net Income?

Taxpayers are required to work out their “Adjusted Net Income” in order to calculate whether they are higher rate taxpayers for the purposes of the personal savings allowance, the High Income Child Benefit charge, the income-related reduction to the personal allowance for any taxpayer who has adjusted net income over £100,000 and for higher personal allowances given to those who were born before 6 April 1948.

A person’s adjusted net income for a tax year is determined as follows:

  • Step 1: Take your net income for the year, which is your total taxable income including employment income, self-employed income (net of trade losses), rental and investment income, and other taxable benefits etc and less any pension contributions that are paid gross.
  • Step 2: Deduct the grossed up amount of any gift made under Gift Aid
  • Step 3. Deduct the grossed up amount of pension contributions paid in accordance with s192 FA 2004 (where your pension provider has already given you relief at the basic rate)
  • Step 4. Add back any relief under section 457 or 458 (payments to trade unions or police organisations) that was deducted in calculating the individual’s net income for the tax year.

Adjusted Net Income is calculated slightly differently from Relevant Earnings for pension purposes.

Small print:

From section 58 ITA 2007

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