The 60% tax trap: earning between £100,000 and £125,140

Published 13 September 2026 · 4 min read · Reviewed against official sources

There is a band of income in the UK where the effective tax rate is higher than at any other level, including for people earning millions. It sits between £100,000 and £125,140, no rate table mentions it, and a large number of people in it have never had it explained. It is created by a rule about the Personal Allowance, and it is also one of the few places in personal tax where a single decision can save several thousand pounds.

The rule

Everyone starts with a Personal Allowance of £12,570 — income on which no tax is paid. But once your adjusted net income exceeds £100,000, the allowance is withdrawn at £1 for every £2 above that line. At £125,140 it has been withdrawn entirely. Between those two points, you are losing tax-free allowance at the same time as you are earning.

Why that becomes 60%

Take someone earning £110,000 who receives a £2 pay rise. The £2 is taxed at 40%: 80p. But the rise also removes £1 of Personal Allowance, which means £1 of income that was tax-free is now taxed at 40%: another 40p. Total tax on the £2 rise: £1.20. That is 60%.

Add National Insurance at 2% on income above £50,270 and the marginal rate on every pound in this band is 62%. For comparison, someone earning £150,000 — past the taper, on the 45% additional rate — has a marginal rate of 47%. The person on £110,000 keeps 38p of their next pound; the person on £150,000 keeps 53p.

What it costs in practice

The full taper, from £100,000 to £125,140, removes £12,570 of allowance and therefore adds £5,028 of tax on top of the 40% already charged on that £25,140 of income. Someone on £125,140 pays roughly £5,000 more tax than a naive reading of the 40% band would suggest.

The band also catches people who do not think of themselves as high earners: a bonus year, a one-off payment, a second income pushing a £95,000 salary over the line. Because the taper is based on total adjusted net income, not salary alone, rental income, dividends and interest all count towards it.

The pension move

The same mechanism runs in reverse. A pension contribution reduces adjusted net income. If it brings you back below £100,000, it restores the withdrawn allowance as well as saving 40% tax on the contribution itself. The effective relief on that contribution is therefore 60% — or 62% with NI under a salary sacrifice arrangement.

Concretely: someone on £110,000 who contributes £10,000 to a pension reduces their adjusted net income to £100,000. They save £4,000 in higher-rate tax on the contribution, and they recover the £5,000 of allowance that had been tapered away, worth a further £2,000 in tax. A £10,000 contribution costs them roughly £4,000 net. There is no other mainstream personal-tax decision with a return on that scale.

The amount to contribute is simply the amount by which your income exceeds £100,000, up to the point where you would run into the pension annual allowance. For most people in this band that allowance is £60,000, though it is itself tapered for very high earners, so the figure is worth confirming if income is above £200,000.

Other ways to bring adjusted net income down

Gift Aid donations. Charitable giving under Gift Aid reduces adjusted net income by the grossed-up amount of the donation. It is the same logic as the pension contribution, with the money going to a charity rather than to your future self.
Salary sacrifice for non-pension benefits. Cycle-to-work, electric vehicle schemes and similar arrangements reduce salary and therefore adjusted net income, with the added NI saving.
Timing of bonuses. Where an employer offers flexibility, deferring a bonus into a year where income would otherwise be below £100,000 can keep both years outside the taper.

The child benefit and childcare cliff edges

The £100,000 line is also the point at which tax-free childcare and the 30 hours of free childcare for three- and four-year-olds are withdrawn entirely in England — not tapered, withdrawn. For a family with two children in nursery, crossing £100,000 by a single pound can cost more in lost childcare support than the pay rise delivered. Northern Ireland's childcare support operates differently, but anyone with children should understand the interaction between the taper and whichever childcare scheme applies to them before accepting a pay rise that lands just over the line.

Self-assessment

If your income is over £100,000 you will normally need to file a self-assessment return even if all your income is taxed through PAYE, because HMRC needs to reconcile the taper against your actual adjusted net income. PAYE codes attempt to estimate it, but they are frequently wrong for people whose income fluctuates. Filing is also how higher-rate relief on relief-at-source pension contributions is claimed, so for anyone in this band it is worth doing properly rather than treating as a formality.

The short version

If you earn between £100,000 and £125,140, your marginal rate is 62%. A pension contribution equal to the excess over £100,000 attracts effective relief at that same rate and brings you out of the band. That decision is worth thousands of pounds a year, and it is entirely within your control.