The 60% Tax Trap: How Earning Between £100k and £125,140 Costs You More Than You Think
Most UK taxpayers know there are three main Income Tax rates: 20%, 40%, and 45%. What catches many people off guard is the hidden rate that applies between £100,000 and £125,140. In this band, the effective marginal rate of tax on each extra pound earned is not 40%. It is 60%. And once you add National Insurance on top, the true cost of each additional pound of income can reach 62%.
This is not a separate tax band. HMRC does not publish a "60% rate" anywhere. The effect arises because the government claws back the £12,570 Personal Allowance at a rate of £1 for every £2 of income above £100,000. By the time your income reaches £125,140, your Personal Allowance has been reduced to zero. The maths behind this mechanism is straightforward, but the financial consequences are significant.
How the Personal Allowance taper works
Every UK taxpayer starts the year with a Personal Allowance of £12,570 (for 2025-26). This is the amount of income you can receive before paying any Income Tax. For most people earning under £100,000, the full allowance applies automatically through their tax code (usually 1257L).
Once your adjusted net income exceeds £100,000, HMRC reduces your Personal Allowance by £1 for every £2 of income above that threshold. The taper continues until the allowance reaches zero, which happens at exactly £125,140 (that is, £100,000 plus twice £12,570).
Here is what this looks like at different income levels:
| Gross Income | Personal Allowance | Allowance Lost |
|---|---|---|
| £100,000 | £12,570 | £0 |
| £105,000 | £10,070 | £2,500 |
| £110,000 | £7,570 | £5,000 |
| £115,000 | £5,070 | £7,500 |
| £120,000 | £2,570 | £10,000 |
| £125,140 | £0 | £12,570 |
Why the effective rate is 60%, not 40%
Consider someone whose income rises from £100,000 to £102,000. That extra £2,000 triggers two separate tax charges:
- Income Tax at 40% on the £2,000 itself = £800.
- Loss of £1,000 of Personal Allowance (half of £2,000). That £1,000 of previously tax-free income is now taxed at 40% = £400.
Total tax on £2,000 of extra income: £800 + £400 = £1,200. That is an effective rate of 60%.
Every pound between £100,000 and £125,140 follows this pattern. You pay 40% on the pound itself, plus 40% on the 50p of allowance you lose. The combined rate: 40% + (50% x 40%) = 60%.
Add National Insurance and the rate exceeds 62%
Employee National Insurance in 2025-26 is 2% on earnings above £50,270. Someone earning £105,000 pays 2% NI on the portion above the Upper Earnings Limit. Combined with the 60% effective Income Tax rate, the total marginal deduction on each pound between £100,000 and £125,140 is 62%.
For the self-employed, Class 4 NI applies at 2% above £50,270, producing the same 62% combined rate in the taper zone.
Worked example: £110,000 salary
Let us work through the full tax calculation for an employee earning £110,000 in England (2025-26), with no pension contributions or other adjustments.
Personal Allowance: Income exceeds £100,000 by £10,000. Allowance reduced by £5,000 (half of £10,000). Remaining allowance: £12,570 - £5,000 = £7,570.
Taxable income: £110,000 - £7,570 = £102,430.
Income Tax:
- Basic rate (20%) on the first £37,700 of taxable income (£12,571 to £50,270) = £7,540
- Higher rate (40%) on £50,271 to £110,000 = £23,892
Total Income Tax: £31,432.
National Insurance:
- 8% on £12,570 to £50,270 = £3,016
- 2% on £50,270 to £110,000 = £1,195
Total NI: £4,211.
Take-home pay: £110,000 - £31,432 - £4,211 = £74,357 per year, or £6,196 per month.
Compare this with someone earning £100,000 who keeps their full Personal Allowance. Their take-home is approximately £69,132. The extra £10,000 of gross income only produces an extra £5,225 in net pay. That is an effective rate of 47.75% on the full £10,000 jump, but the marginal rate on each individual pound within the taper zone is 62%.
See the full breakdown for a £110,000 salary.
Who gets caught by this?
The 60% trap affects anyone whose adjusted net income falls between £100,000 and £125,140. Common scenarios include:
- Employees receiving a bonus or pay rise that pushes them above £100,000
- Company directors drawing a combination of salary and dividends where total income crosses the threshold
- Landlords with significant rental income on top of employment earnings
- Self-employed professionals whose profits fluctuate year to year
- Anyone crystallising a capital gain in the same year as high employment income (gains count toward adjusted net income)
Strategies to reduce or avoid the 60% rate
Pension contributions
The single most effective tool for managing the 60% trap. Pension contributions reduce your adjusted net income for Personal Allowance purposes. If your gross income is £115,000 and you contribute £15,000 into a pension (via salary sacrifice or personal contribution with tax relief), your adjusted net income drops to £100,000 and your full Personal Allowance is restored.
The tax relief on pension contributions in the taper zone is extraordinary. Each £1 contributed effectively costs you only 38p (after 60% relief plus 2% NI saving through salary sacrifice). For higher earners, maximising pension contributions in this band is one of the most tax-efficient moves available anywhere in the UK tax system.
The annual pension allowance for 2025-26 is £60,000, with the option to carry forward unused allowance from the previous three years. Check our pension calculator for a £110,000 salary.
Salary sacrifice arrangements
Beyond pensions, salary sacrifice for childcare vouchers (where still available), cycle-to-work schemes, or electric vehicle leasing can reduce adjusted net income. Each of these replaces taxable salary with a non-cash benefit, potentially pulling income below the £100,000 taper trigger.
Use our salary sacrifice calculator to model the impact on your take-home pay.
Gift Aid donations
Charitable donations made under Gift Aid extend your basic rate band and can also be deducted from adjusted net income on your Self Assessment return. A £5,000 Gift Aid donation reduces your adjusted net income by £5,000, restoring £2,500 of Personal Allowance. The actual cost of the donation is significantly reduced by the tax saved through restoring the allowance.
Explore our Gift Aid calculator to see the combined tax benefit.
Timing income across tax years
Where you have control over when income is received (for example, as a company director choosing when to pay dividends, or a freelancer invoicing for work), spreading income across two tax years to keep each year below £100,000 avoids the taper entirely. This requires careful planning and usually the advice of an accountant, but the savings can be substantial.
The taper and Scotland
Scottish taxpayers are subject to the same Personal Allowance taper. The £100,000 trigger and the £1-for-£2 reduction apply identically. Scottish Income Tax rates differ from England (the Higher rate is 42% rather than 40%, and the Advanced rate is 45%), which means the effective marginal rate in the taper zone is slightly different.
For a Scottish taxpayer in the taper zone, the effective rate is 42% + (50% x 42%) = 63%, before NI. With 2% NI, the combined marginal rate reaches 65%. Scottish taxpayers in this income band face an even stronger incentive to use pension contributions to manage their adjusted net income.
See the Scottish breakdown for £110,000.
Common misconceptions
Misconception: "I should refuse a pay rise that takes me above £100,000." This is almost never true. The 60% rate applies only to income in the taper zone, not to all your income. Earning £101,000 instead of £100,000 costs you only the marginal rate on that extra £1,000. You are still better off earning more, just by less than you might expect.
Misconception: "The 60% rate is a bug, not a feature." The Treasury is fully aware of this effect. It was introduced deliberately in 2010 when the Personal Allowance taper replaced the previous system. The government has chosen not to change it because it generates significant revenue from a relatively small number of taxpayers (around 700,000 people earn between £100,000 and £125,140).
Frequently asked questions
Does the 60% rate apply to dividend income?
Dividends count toward your adjusted net income and can trigger the Personal Allowance taper. However, dividends in the taper zone are taxed at the dividend higher rate (33.75%), not 40%. The effective rate on dividends in the taper zone is 33.75% + (50% x 33.75%) = 50.625%. This is still a very high rate, but lower than the 60% that applies to employment income. Check our dividend tax calculator for exact figures.
Can pension contributions really save me 60% in tax relief?
When your income is between £100,000 and £125,140, each pound contributed to a pension reduces your adjusted net income by a pound, restoring 50p of Personal Allowance. The tax relief is 40% on the contribution itself plus 40% on the restored 50p of allowance. The combined relief rate on pension contributions in this band is 60% (or 62% including NI savings through salary sacrifice). No other tax relief in the UK system matches this rate.
What counts as "adjusted net income" for the taper?
Adjusted net income is your total taxable income minus certain deductions: gross pension contributions (personal, not employer), Gift Aid donations, and trading losses. It includes employment income, self-employment profits, rental income, dividends, savings interest, and capital gains (for the purpose of the High Income Child Benefit Charge, not the PA taper directly). HMRC provides a worksheet in the Self Assessment notes to calculate this figure precisely.
I earn £130,000. Does the 60% rate still affect me?
No. Once your income exceeds £125,140, your Personal Allowance is already zero and the taper has no further effect. You pay the standard 40% higher rate (or 45% additional rate above £125,140). The 60% band only applies to the £25,140 window between £100,000 and £125,140. See your full breakdown at £130,000.
Does the loss of Personal Allowance affect my tax code?
Yes. If HMRC expects your income to exceed £100,000, they will issue a reduced tax code. Instead of 1257L (reflecting the full £12,570 allowance), you might receive a code like 757L (reflecting a reduced allowance of £7,570) or even a K code if your benefits in kind and reduced allowance combine to create a negative allowance. If your income is variable and you are not sure whether you will exceed £100,000, contact HMRC or submit a Self Assessment return so your tax code is adjusted correctly during the year rather than leaving a large underpayment to settle after April.
Is the 60% trap the same as the High Income Child Benefit Charge?
These are separate mechanisms, though both use income thresholds. The High Income Child Benefit Charge starts at £60,000 and claws back Child Benefit at 1% for every £200 of income above that level, reaching 100% at £80,000. The Personal Allowance taper starts at £100,000. An unlucky taxpayer earning between £60,000 and £80,000 with children faces the Child Benefit clawback, and then hits the 60% trap if their income rises further. Use our Child Benefit tax calculator for that lower threshold.