The £100,000 Tax Trap: How the 60% Rate Works (and How to Escape It)

By The Money Calculator Team · Updated 2 June 2026 · 6 min read

The short version: once your adjusted net income passes £100,000, you lose £1 of tax-free personal allowance for every £2 you earn, on top of paying 40% tax. The result is an effective 60% tax rate (62% with National Insurance) on everything between £100,000 and £125,140. Paying the excess into your pension sidesteps it — and does so remarkably cheaply. The salary sacrifice optimiser works out exactly how much.

Effective rate in the band

60%

With National Insurance

62%

£1 sacrificed costs just

38p

Few people expect a pay rise to be taxed at more than the headline 45% top rate. Yet there is a band of income — between £100,000 and £125,140 — where every extra pound is effectively taxed at 60%. It is one of the quirks of the UK system, and one of the easiest to plan around once you understand it.

What is the £100,000 tax trap?

Everyone gets a personal allowance — £12,570 of income taxed at 0%. But once your adjusted net income (broadly, your taxable income after pension contributions and Gift Aid) rises above £100,000, that allowance is withdrawn at a rate of £1 for every £2 you earn over the limit. By £125,140 it has disappeared completely.

Why it's 60%, not 40%

Here is the arithmetic for a higher-rate taxpayer in this band. Earn one extra pound and two things happen:

That pound is taxed at the 40% higher rate — so 40p goes in tax.
You also lose 50p of personal allowance. That 50p, which used to be tax-free, is now taxed at 40% too — another 20p.

Add them together and you keep just 40p of your extra pound — a 60% effective tax rate. Factor in 2% National Insurance and the true marginal rate is 62%. The effect is purely within the band: below £100,000 you are on 40%, and above £125,140 (allowance fully gone) you drop back to the 45% additional rate.

Your marginal tax rate by income (2026/27, rest-of-UK, before National Insurance). The personal-allowance taper creates a 60% spike between £100,000 and £125,140 — steeper than the 45% rate that applies above it.

It can be even worse if you have young children

For parents of pre-school children in England, £100,000 is a second cliff edge: crossing it also removes eligibility for funded childcare hours and the Tax-Free Childcare top-up. Those can be worth thousands of pounds a year, which means a modest pay rise above £100,000 can genuinely leave a family worse off than before. If that is you, keeping your adjusted income under £100,000 matters even more — check the current childcare rules on GOV.UK.

How to escape it: pay into your pension

Because the trap is measured on adjusted net income, anything that reduces that figure pulls you back out — and pension contributions are the main lever. Sacrifice or contribute enough to bring your adjusted income down to £100,000 and your full allowance is restored.

The striking part is how cheap this is. Take someone earning £110,000 who pays £10,000 into their pension by salary sacrifice, bringing their adjusted income to £100,000:

Into their pension£10,000

Income Tax saved£6,000

National Insurance saved£200

Actual cost to take-home pay£3,800

In other words, £10,000 lands in their pension for a real cost of just £3,800 — an effective rate of 38%. Put the other way round, every £1 they sacrifice in this band costs them only 38p of take-home. There are very few places you will find a return like that.

Every £1 you redirect into a pension in the £100k–£125k band costs you just 38p of take-home — and rescues your personal allowance on the way.

What actually lowers your adjusted net income

The trap is measured on adjusted net income, so only things that reduce that figure pull you out. Plenty of sensible money moves don't touch it at all:

Lowers it (escapes the trap)

Pension contributions — salary sacrifice or a personal contribution
Gift Aid donations to charity
Sacrificing a bonus before it's paid
Cycle-to-work / EV salary-sacrifice schemes

Doesn't change it

ISA contributions — no income-tax relief
Overpaying your mortgage
Your partner's pension — it's tested on you alone
Moving cash between savings accounts

Scotland: the trap is even steeper

The personal-allowance taper is UK-wide, but Scottish taxpayers face the 45% advanced rate in this band rather than 40%. The same allowance-withdrawal mechanism then produces an effective rate of around 67.5% before National Insurance — making pension contributions in this band even more worthwhile.

The bottom line

If your income sits between £100,000 and £125,140, the 60% band is real but eminently avoidable. A pension contribution that brings your adjusted income back to £100,000 restores your allowance, builds your retirement pot, and costs far less than the headline figure suggests. Work out your own number before deciding how much to pay in.

Find the exact contribution to escape the trap — and what it costs you
Try the salary sacrifice optimiser →

Common questions

At what income does the 60% tax trap start?

It applies to adjusted net income between £100,000 and £125,140. Below £100,000 your full personal allowance is intact; above £125,140 it has gone entirely and the marginal rate drops back to 45%.

How do I get out of the £100,000 trap?

Reduce your adjusted net income below £100,000 — most commonly by paying more into a pension (via salary sacrifice or a personal contribution) or by giving through Gift Aid. Both lower the income your allowance is tested against.

Does a bonus count towards the £100,000 limit?

Yes. The test is on your total adjusted net income for the year, including bonuses, so a bonus can be what tips you into the trap. Sacrificing some or all of a bonus into your pension is one way to stay under the line.

Is the trap worse if I have young children?

It can be. In England, crossing £100,000 of adjusted net income also removes eligibility for funded childcare hours and Tax-Free Childcare, which can be worth thousands — so for some parents a pay rise into this band leaves them worse off overall. Check the current rules on GOV.UK.

Is the trap the same in Scotland?

The allowance taper is UK-wide, but because the Scottish marginal rate in this band is 45% rather than 40%, the effective rate is steeper still — around 67.5% before National Insurance.

Sources

GOV.UK — Income Tax rates & Personal Allowance and GOV.UK — adjusted net income. See our full methodology and rates.

The Money Calculator Team

Research & Editorial

Written and reviewed by our editorial team · fact-checked against current HMRC and GOV.UK guidance

These guides are written and maintained by the team behind The Money Calculator — the same people who build the calculators on this site. We aim to explain UK tax and personal finance in plain English and check every figure against current HMRC and government guidance before publishing. This is general information to help you weigh your options, not personal financial advice.

How we calculate Disclaimer

This article is general information for the 2026/27 tax year and not personalised financial advice. Check your own loan details in your student loan account and verify figures against GOV.UK before making decisions.

← All guides