The £100k Tax Trap — UK 2025-26
Between £100,000 and £125,140 you lose your personal allowance — creating a stealth 60% marginal Income Tax rate. Every £2 earned above £100k costs £1.20 in tax (60p IT + 2p NI). Here's the full breakdown.
How the £100k trap works
The 60% rate arises because: 40% higher-rate IT on the extra income, plus 20% IT on the personal allowance being removed (every £2 earned removes £1 of PA × 20% basic rate = another 20%). The standard fix is to make a pension contribution (SIPP or salary sacrifice) to bring taxable income below £100,000.
| Salary | Personal allowance | Take-home | Monthly | Effective rate | Marginal rate |
|---|---|---|---|---|---|
| £100,000 | £12,570 | £68,557 | £5,713 | 31.4% | 62% |
| £105,000 | £10,070 | £70,457 | £5,871 | 32.9% | 62% |
| £110,000 | £7,570 | £72,357 | £6,030 | 34.2% | 62% |
| £112,570 | £6,285 | £73,334 | £6,111 | 34.9% | 62% |
| £115,000 | £5,070 | £74,257 | £6,188 | 35.4% | 62% |
| £120,000 | £2,570 | £75,914 | £6,326 | 36.7% | 70% |
| £125,000 | £70 | £77,439 | £6,453 | 38.1% | 50% |
| £125,140 | Nil | £77,482 | £6,457 | 38.1% | 47% |
| £130,000 | Nil | £80,057 | £6,671 | 38.4% | 47% |
| £150,000 | Nil | £90,657 | £7,555 | 39.6% | 47% |
Pension sacrifice — the standard fix
By contributing (salary − £100,000) into a pension (SIPP or employer salary sacrifice), you bring your adjusted net income below £100,000, restoring the full £12,570 personal allowance. This converts a 60% tax rate on that slice into 0% (pension contributions are pre-tax). For someone earning £110,000, contributing £10,000 to a pension saves approximately £6,000 in tax while building their retirement fund.