What is adjusted net income?

The HMRC definition

Adjusted net income (ANI) is HMRC's measure of your taxable income after a small set of deductions — the figure HMRC actually uses when applying income-based thresholds across the tax system. It is not a number that appears on your payslip or in your bank account; it is a calculated figure derived from your overall tax position for the year.

The calculation, in plain English: take your total taxable income from all sources (employment, self-employment, pensions, dividends, savings interest, rental income, taxable benefits-in-kind), then deduct grossed-up Gift Aid donations and grossed-up pension contributions made via relief at source. The result is your adjusted net income for the year.

Why ANI matters

ANI is the trigger for most of the UK's income-related tax cliff edges:

• Personal Allowance taper — applies above £100,000 ANI and removes the entire Personal Allowance by £125,140 ANI. This creates the 60% tax trap.
• High Income Child Benefit Charge — tapers Child Benefit between £60,000 and £80,000 ANI for the higher earner in the household.
• Tax-Free Childcare and 30 hours free childcare — eligibility cuts off if either parent's ANI exceeds £100,000.
• Marriage Allowance — the recipient must have ANI below the higher-rate threshold.
• Pension annual allowance taper — the £60,000 annual allowance starts tapering for very high earners; the relevant measure is "adjusted income" rather than ANI, but the principle is the same and the calculation is similar.

Worked example

Salary £110,000, plus £2,000 of dividend income from a small share portfolio, plus a £5,000 net Gift Aid donation to a charity, plus £8,000 net into a personal pension via relief at source.

• Total taxable income: £112,000
• Grossed-up Gift Aid: £5,000 / 0.8 = £6,250
• Grossed-up pension contribution: £8,000 / 0.8 = £10,000
• ANI = £112,000 - £6,250 - £10,000 = £95,750

This person is below the £100,000 cliff for the Personal Allowance taper and well below the £125,140 ceiling. They retain their full Personal Allowance and avoid the 60% trap entirely — purely because the pension contribution and charitable donation pulled their ANI below the threshold.

What is not deducted

• Salary-sacrifice pension contributions are not deducted again — they are already excluded from gross salary on the payslip, and therefore from total taxable income.
• ISA contributions are not deducted — ISA money is paid in from already-taxed income.
• Trading-allowance, property-allowance, and rent-a-room reliefs are applied at the income source level, not at ANI.

Related on this site

Use the adjusted net income calculator to compute your own number, the salary sacrifice calculator to model how pension contributions reduce ANI, and the HICBC calculator if Child Benefit clawback is the constraint.

The short answer

ANI starts with taxable income, then adjusts for certain reliefs such as grossed-up Gift Aid and relief-at-source pension contributions. It matters because HMRC uses it for the High Income Child Benefit Charge, the Personal Allowance taper and the individual income test for Tax-Free Childcare.

Why people get caught by it

• You can earn below a headline salary number and still have ANI pulled up by other taxable income.
• You can also push ANI back down with the right pension contribution or Gift Aid entry.
• That is why a simple pay figure can be the wrong number for family-support planning.

Best next pages

Use Adjusted Net Income Calculator for the actual number, then Child Benefit and HICBC Calculator or Tax-Free Childcare Chooser if those thresholds matter.

Official source: HMRC adjusted net income guidance.

The precise four-step calculation

HMRC sets out adjusted net income as a defined sequence. Working through it in order avoids the most common errors:

• Step 1 — add up your total taxable income. Employment earnings (including most taxable benefits-in-kind such as a company car or private medical cover), self-employment profits, rental profit, pension income, taxable savings interest above your Personal Savings Allowance and dividends above the dividend allowance. This is your “net income” before any of the adjustments below.
• Step 2 — deduct certain reliefs that come off income, such as trading losses carried across and payments made gross to a pension (for example certain occupational schemes that give relief before tax). These reduce the starting figure.
• Step 3 — deduct the grossed-up value of personal pension contributions paid by relief at source. Divide the amount you actually paid by 0.8 to gross it up. A £4,000 payment becomes a £5,000 deduction, because basic-rate relief of £1,000 was already added inside the pension.
• Step 4 — deduct the grossed-up value of Gift Aid donations. Again divide the cash gift by 0.8: a £800 donation is a £1,000 deduction.

The figure you are left with is your adjusted net income for the year. Note what is not in the list: salary-sacrifice pension contributions (already removed from gross pay, so never added in the first place), ISA savings (paid from taxed money), and the personal allowance itself (ANI is measured before personal allowances are applied).

The five thresholds ANI controls

ANI is not an abstract figure — it is the precise number HMRC tests against each of these limits. Crossing any of them changes your tax or your entitlements:

• Personal Allowance taper — £100,000. Above £100,000 ANI you lose £1 of the £12,570 allowance for every £2 of income, with the allowance fully gone at £125,140. This is the mechanism behind the roughly 60% effective marginal rate across that band.
• High Income Child Benefit Charge — £60,000 to £80,000. The higher earner in a household claiming Child Benefit repays 1% of the benefit for every £200 of ANI over £60,000, so it is fully clawed back at £80,000. It is assessed on ANI, not salary, so pension contributions and Gift Aid directly reduce the charge.
• Tax-Free Childcare and 30 hours free childcare — £100,000. If either parent has ANI above £100,000, the family loses both the 20% government top-up (worth up to £2,000 per child a year) and the extended free hours. This is an all-or-nothing cliff edge, not a taper — being £1 over costs the full entitlement.
• Tapered annual allowance — £260,000 adjusted income. The £60,000 pension annual allowance begins to taper once “adjusted income” exceeds £260,000, falling by £1 for every £2 above that to a £10,000 floor. A separate “threshold income” test of £200,000 acts as a gateway, and threshold income is calculated in a very similar way to ANI — net income less grossed-up pension and Gift Aid.
• Marriage Allowance. The partner who receives the transferred 10% of allowance must be a basic-rate taxpayer, i.e. have income below the higher-rate threshold. If their ANI pushes them into higher-rate tax, the couple is no longer eligible.

How to legitimately reduce your ANI — a worked £101k example

Because ANI is measured after grossed-up pension and Gift Aid, the two reliable and entirely legitimate ways to bring it down are a larger pension contribution and a charitable donation. Both reduce the actual income HMRC tests against the thresholds above — this is tax planning HMRC explicitly anticipates, not avoidance.

Take someone with a salary of £101,000 and no other income. Their ANI is £101,000, so they have crept £1,000 into the Personal Allowance taper and (if they have young children) lost Tax-Free Childcare entirely. They make a relief-at-source personal pension contribution of £800:

• Grossed-up contribution: £800 ÷ 0.8 = £1,000.
• ANI = £101,000 − £1,000 = £100,000.

That single £800 net payment (£1,000 gross) takes them back to the £100,000 line: the tapered slice of Personal Allowance is reinstated and, if they have children, Tax-Free Childcare and the 30 free hours are back in play. The combined value of basic-rate relief, reclaimed higher-rate relief, the restored allowance and the childcare top-up can mean the £800 outlay is worth several times its cost. Anyone hovering just above £100,000, £60,000 or the higher-rate threshold should calculate the exact contribution needed to clear the line before the tax year ends on 5 April.