The 60% Tax Trap: How Earning Between £100k–£125,140 Costs You More
One of the most counterintuitive features of the UK tax system — and one that costs high earners thousands of pounds they could legally avoid.
Why Does the 60% Trap Exist?
The Personal Allowance — normally £12,570 — is not universal. Above £100,000, HMRC withdraws £1 of allowance for every £2 of additional income. By the time your income reaches £125,140 (precisely £100,000 + 2 × £12,570), the allowance has been completely eliminated.
The "trap" arises because losing your allowance is mathematically equivalent to paying extra tax. Here is the mechanism: if you earn one extra pound above £100,000, you pay 40% higher rate income tax on it, and you lose 50p of allowance. That 50p of allowance would otherwise have shielded 50p from 40% tax — a further 20p of tax. So each £1 earned triggers 40p + 20p = 60p of income tax, plus 2p of NI, giving a total effective marginal rate of 62p in the pound.
A Worked Example: £105,000 Salary
Let us look at exactly what happens with a £105,000 salary versus a £100,000 salary.
At £100,000:
- Personal Allowance: £12,570 (full — the taper has not yet started)
- Taxable income: £87,430
- Basic rate (20%) on £37,700: £7,540
- Higher rate (40%) on £49,730: £19,892
- Total income tax: £27,432
- NI: £3,016 (8% on £37,700) + £993 (2% on £49,730) = £4,009
- Net take-home: £68,559/year
At £105,000:
- Personal Allowance: £12,570 − (£5,000 ÷ 2) = £10,070 (reduced)
- Taxable income: £94,930
- Basic rate (20%) on £37,700: £7,540
- Higher rate (40%) on £57,230: £22,892
- Total income tax: £30,432
- NI: £3,016 + (£5,000 × 2%) = £3,016 + £100 = £3,116
- Net take-home: £71,452/year
The extra £5,000 salary cost £3,000 in income tax + £100 in NI = £3,100 in total deductions. You kept only £1,900 of the £5,000 raise — an effective marginal rate of 62%.
The Full Picture: £100k to £125,140
| Gross Salary | Allowance Lost | Income Tax | Extra Tax vs £100k | Net Pay |
|---|---|---|---|---|
| £100,000 | £0 | £27,432 | — | £68,559 |
| £105,000 | £2,500 | £30,432 | +£3,000 | £71,452 |
| £110,000 | £5,000 | £33,432 | +£6,000 | £74,345 |
| £115,000 | £7,500 | £36,432 | +£9,000 | £77,238 |
| £120,000 | £10,000 | £39,432 | +£12,000 | £80,131 |
| £125,140 | £12,570 | £42,463 | +£15,031 | £83,046 |
Once past £125,140, the Personal Allowance is gone and the marginal rate drops back to 47% (45% IT + 2% NI). The trap is exclusively in that £25,140 corridor.
How to Avoid the 60% Tax Trap
Option 1: Pension Contributions (Most Effective)
Pension contributions reduce your adjusted net income — the figure HMRC uses to assess allowance withdrawal. If you contribute £10,000 to a pension when earning £110,000, your adjusted net income falls to £100,000, restoring the full £12,570 allowance.
The maths are compelling: every £1,000 contributed to a pension in this zone generates £600 of income tax relief (compared to £400 for a basic-rate taxpayer). Salary sacrifice is particularly clean — it reduces your gross pay before HMRC sees it, costs you nothing extra in employer NI, and is completely above board.
Option 2: Gift Aid Donations
Donations under Gift Aid also reduce adjusted net income. A £10,000 gross donation (you pay £8,000, charity claims £2,000 Gift Aid) reduces adjusted net income by £10,000. Effective cost to you after tax: £4,000 (because you get 60p relief on each £1 in the trap zone). This is a legitimate strategy but more constrained than pensions since you permanently give away the money.
Option 3: Salary Sacrifice for Other Benefits
Cycle-to-work schemes, EV car salary sacrifice, and additional leave purchase schemes all reduce gross pay. While individually smaller in scale than pension contributions, they can contribute to pushing income below £100,000 when combined.
Frequently Asked Questions
What is the 60% tax trap in the UK?
The 60% tax trap occurs for income between £100,000 and £125,140. For every £2 earned above £100,000, the Personal Allowance reduces by £1, creating an effective 60% marginal income tax rate (plus 2% NI) in that zone.
How can I avoid the 60% tax trap?
Pension contributions are the most effective method. Contributing enough to bring your adjusted net income below £100,000 restores the full Personal Allowance and generates 60p of tax relief per £1 contributed in this zone. Gift Aid donations also qualify.
What is adjusted net income?
Adjusted net income is your total income minus pension contributions, Gift Aid donations, and certain other reliefs. It is this figure — not your gross salary — that HMRC uses to assess whether your Personal Allowance should be withdrawn.