Earn just over £100,000 and something odd happens to your payslip: each extra pound is taxed far more heavily than the headline 40% rate suggests. This guide explains the 60% tax trap and the legitimate ways to escape it.
What is the 60% tax trap?
Between £100,000 and £125,140 of income, your tax-free personal allowance is withdrawn by £1 for every £2 earned, creating an effective 60% marginal tax rate on that band. Pension contributions and Gift Aid are the main ways to reclaim the allowance.
The trap is the band of income between £100,000 and £125,140. Inside it, you pay 40% income tax on each extra pound and simultaneously lose 50p of your tax-free personal allowance, which then gets taxed at 40% too. The combined effect is an effective marginal rate of 60%.
It is not an official tax rate; you will not find 60% in any HMRC table. It is the arithmetic consequence of the personal allowance taper, and it catches bonuses, pay rises and vesting share awards that push income over £100,000, often by surprise.
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Why the personal allowance is withdrawn
Everyone starts with a personal allowance of £12,570 of tax-free income. Once your adjusted net income passes £100,000, the allowance is reduced by £1 for every £2 above the threshold. By £125,140 it has gone entirely.
Adjusted net income is the key phrase: it is your total income minus certain deductions, most importantly gross pension contributions and Gift Aid donations. That definition is exactly what creates the escape routes below.
Worked example: the effective 60% rate in action
Take someone earning £125,000, and compare their position with and without a £25,000 gross pension contribution made by salary sacrifice. Figures are approximate, using 2026/27 rates and thresholds.
No pension contribution | £25,000 salary sacrifice | |
Taxable salary | £125,000 | £100,000 |
Personal allowance | £70 (almost fully lost) | £12,570 (fully restored) |
Income tax (approx.) | £42,400 | £27,400 |
Employee NI saved | – | around £500 |
Paid into pension | £0 | £25,000 |
Tax and NI saved | – | around £15,500 |
Read that last column again: £25,000 goes into the pension at a net cost of roughly £9,500. The £15,500 saving on a £25,000 contribution is an effective 62% return before the money is even invested. That is the trap working in reverse.
Escape route 1: pension contributions and salary sacrifice
Pension contributions reduce your adjusted net income pound for pound. Contribute enough to bring income back to £100,000 and the full personal allowance returns, so every pound contributed in the trap band gets effective relief of around 60%.
Salary sacrifice is the most efficient route where your employer offers it, because it also saves National Insurance for you and your employer. We cover the mechanics in full in our guide to salary sacrifice for pensions. Personal contributions with tax relief achieve a similar income tax result if sacrifice is not available.
Escape route 2: charitable giving through Gift Aid
Gift Aid donations also reduce adjusted net income by the gross value of the gift. If you already give to charity, making sure donations are Gift Aided, and claiming the higher rate relief through your tax return, chips away at the taper.
For someone inside the band, a gross £1,000 donation effectively costs around £400 once the combined reliefs are counted. Giving is rarely done for tax reasons, but the trap makes it unusually cheap.
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Other levers: childcare, EV and cycle-to-work schemes
Crossing £100,000 does not just trigger the taper. It also removes eligibility for tax-free childcare and funded childcare hours, which can be worth thousands to a family, making the effective rate at the margin even higher than 60% for working parents.
Other salary sacrifice schemes, such as electric vehicle leasing and cycle-to-work, also reduce taxable pay and can help keep adjusted net income below the threshold, on top of their own tax advantages.
How much can you actually save?
The maximum value of the trap band is £25,140 of income between £100,000 and £125,140. Clear the whole band with pension contributions and the saving is roughly £15,000 of tax plus National Insurance where sacrifice is used.
The constraint is the pension annual allowance of £60,000 (tapered for the highest earners), plus any unused allowance carried forward from the previous three years. If you are new to this territory, our guide for HENRYs covers the wider planning picture for high earners who are not rich yet.
Frequently Asked Questions
What is the 60% tax trap?
It is the effective marginal tax rate on income between £100,000 and £125,140. In that band you pay 40% income tax while also losing 50p of personal allowance per pound earned, and the lost allowance is itself taxed at 40%. The combined effect is an effective 60% rate, before National Insurance.
How do I avoid losing my personal allowance?
At what income does the personal allowance taper?
How much can pension contributions save above £100k?
The most expensive band of income you will ever earn
The 60% trap punishes inattention and rewards planning more than almost any other feature of the UK tax system. If your income is near or above £100,000, the response is usually simple, but it has to happen before the tax year ends.
If you want to work out exactly how much of your income sits in the trap, and the most efficient way out of it, get in touch with Ark Wealth Management.
This article is for information only and does not constitute personal financial or tax advice. Tax treatment depends on individual circumstances and may change. Figures are approximate and based on current rates and thresholds. Ark Wealth Management is an Appointed Representative of Quilter Financial Services Ltd and is authorised and regulated by the Financial Conduct Authority.
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We would be pleased to learn more about your plans and show how we can support you.