The 60% tax trap: why earning between £100,000 and £125,140 costs so much
The highest headline rate of income tax in England, Wales and Northern Ireland is 45%. But people earning between £100,000 and £125,140 actually pay an effective rate of 60% on that slice of income. Here's how it happens.
How the trap works
Everyone starts with a £12,570 personal allowance, the amount you can earn tax-free. Once your income goes over £100,000, you lose £1 of that allowance for every £2 you earn above £100,000. By £125,140, it's gone completely.
So for every extra £2 you earn in this band, you pay 40% higher-rate tax on the £2 (80p), and £1 of previously tax-free income becomes taxable at 40% (another 40p). That's £1.20 tax on £2, or 60%.
A worked example
A pay rise from £100,000 to £110,000 adds £10,000 to your salary. In 2026/27, your income tax goes up by £6,000 and your National Insurance by £200. You keep £3,800 of the £10,000, just 38%.
Ways people reduce it
Pension contributions. Paying more into your pension reduces your adjusted net income. If you can bring it back down to £100,000, you keep your full personal allowance. Salary sacrifice also saves National Insurance. In effect, money paid into a pension in this band gets 60% tax relief.
Gift Aid donations. Charity donations under Gift Aid also reduce your adjusted net income for this purpose.
Childcare. The trap matters even more for parents, because tax-free childcare and some funded childcare hours are lost if either parent's adjusted net income goes over £100,000.
Check your own numbers
Try different salary and pension figures in the take-home pay calculator to see how much a bigger pension contribution would cost you in take-home pay. Pensions and tax planning can be complicated, so for large sums it's worth speaking to a regulated financial adviser.