What is Adjusted Net Income (ANI) and What Do I Need to Know?
If you’re a higher or additional rate taxpayer (40% and 45% for tax year 2025/26), you claim Child Benefit, are eligible for Tax-Free Childcare, or make substantial pension contributions, it’s important to understand Adjusted Net Income (ANI). ANI is vital for managing your tax position effectively.
At Hamlyns, our personal tax experts help you navigate the complexities of ANI, identify opportunities that can reduce your tax bill, and more. In this guide, we’ll explain what ANI is, how it’s calculated, and why it matters for your personal tax planning.
What Is Adjusted Net Income?
Adjusted Net Income is a calculation of personal income, used by HMRC, to determine eligibility for certain tax allowances, reliefs and benefits.
ANI is not the same as your taxable income (for standard income tax) or relevant earnings (for pension contributions). It might sound technical, but think of ANI as essentially your total taxable income with adjustments made for pension contributions, Gift Aid donations and other types of reliefs.
How Is ANI Calculated?
ANI is calculated by taking total taxable income before pension allowances, with certain deductions and additions. HMRC has outlined instructions on how to calculate ANI with examples, but the most common scenario follows the below five-step process:
Step 1: Calculate your taxable income, including:
- Employment income (salary, bonuses, benefits and dividends)
- Self-employment profits
- Savings interest
- Income from rental property, pensions, and savings
- Any foreign income (if applicable)
Step 2: Calculate your net income. Deduct:
- Gross pension contributions (where your employer pays directly without tax relief already applied)
- Trading losses
Step 3: Deduct “grossed-up” Gift Aid donations:
- If you’ve made charitable donations under Gift Aid, deduct the “grossed-up” amount. For every £1 donated, deduct £1.25 from your net income (the £1 you paid plus the 25p basic rate tax the charity reclaims).
Step 4: Pension deductions:
- For personal pension contributions where your provider has already added basic rate tax relief, deduct the “grossed-up” amount. Again, for every £1 you contributed, deduct £1.25.
Step 5: Add back small reliefs:
- Add back any tax relief for trade union or police organisation payments (of up to £100).
The final figure is your Adjusted Net Income.
Why ANI is Important
Personal Allowance Tapering (£100,000+)
Once your ANI exceeds £100,000, your personal allowance (£12,570 for 2025/26) reduces by £1 for every £2 additional ANI you can earn. At £125,140, your personal allowance disappears entirely.
This creates an effective marginal tax rate of 60% between £100,000 and £125,140. You’re paying 40% tax on that income band, plus losing 40% tax relief on half the personal allowance you’re forfeiting.
High Income Child Benefit Charge (£60,000-£80,000)
If you or your partner claim Child Benefit and either of your ANIs exceeds £60,000, the High Income Child Benefit Charge (HICBC) applies. The charge is 1% of the Child Benefit received for every £200 of ANI over £60,000.
If you or your partner earn £80,000 or more, the HICBC will equal the full Child Benefit amount, effectively fully clawing it back through your tax return. The higher earner must pay the charge, regardless of who receives Child Benefit. Parents can opt out of Child Benefit payments rather than receive them and pay HICBC.
Tax-Free Childcare (£100,000)
This scheme exists to help eligible working parents, who contribute to a ‘pot’ reserved for paying childcare providers, receive additional government contributions (by way of an amount equal to basic rate income tax). The maximum amount of government contributions is £500 per child every three months, which would require an input of £2,000 from parents.
If you or your partner’s ANI exceeds £100,000, you become completely ineligible for Tax-Free Childcare. Exceeding this threshold, even by only £1, can mean your eligibility disappears entirely.
How to Reduce ANI
- Pay into a pension: The grossed-up deduction means that £8,000 of contributions reduces your ANI by £10,000, potentially saving £2,000 in tax and regaining the full allowance.
- Make Gift Aid donations: Charitable donations can reduce your ANI. A £4,000 donation under Gift Aid, for example, reduces ANI by £5,000. Gift Aid also extends your basic tax rate band.
- Time your income: If you’re close to a threshold near the end of the tax year, consider delaying bonuses, dividend payments, or property disposals to fall in different tax years, spreading income to keep below critical limits. Always consult with a professional accountant to avoid breaching HMRC anti-avoidance laws.
- Use salary sacrifice: Salary sacrifice for pensions reduces your gross income before it’s calculated, directly lowering your ANI and avoiding threshold breaches. Consider swapping part of your salary for pension contributions, low-emission company cars, Cycle to Work, or childcare vouchers if already enrolled.
- Consider dividend vs salary mix: For company directors, adjusting the balance between salary and dividends can help manage ANI more effectively, as both are included but can be timed differently.
How Hamlyns Can Help
ANI calculations can be complex, particularly if you’ve got multiple income streams and are keeping on top of various pension schemes and benefits. Strategic planning around ANI thresholds requires a complete understanding and analysis of your entire financial picture.
At Hamlyns, our chartered accountants specialise in personal tax planning for higher earners and families. We can do anything from calculating your current and projected ANI, identify your risk profile, and ensure you claim all available reliefs to implementing tax-efficient arrangements and strategies, and prepare accurate Self Assessment returns as part of a full suite of professional services.
Contact Hamlyns today to discuss your ANI position and see how we can help you keep more of your hard-earned money while being fully HMRC-compliant.
