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Between £100,000 and £125,140 of adjusted net income the UK personal allowance is withdrawn at £1 for every £2 above £100,000. Combined with the 40% higher rate this creates an effective marginal rate of 60% — the highest rate paid by any non-additional rate taxpayer in the UK.
Effective marginal rate in the trap
60%
On income £100k–£125,140
Where the trap ends
£125,140
Full personal allowance withdrawn
Tax saved by escaping the trap
£5,028
Full personal allowance restored
Why this matters in 2026
The £100,000 threshold has been frozen since 2010. With wage growth and bonuses pushing more doctors, executives and business owners into this band each year, the trap catches an ever-wider group. A pension contribution of £25,140 by someone earning exactly £125,140 restores the full personal allowance and saves over £5,000 in additional tax.
In this report
01
How the 60% trap works
The personal allowance for 2026/27 is £12,570. For every £2 of adjusted net income above £100,000 the allowance reduces by £1. At £125,140 it is fully withdrawn. The income between £100,000 and £125,140 is taxed at 40% higher rate plus an additional effective 20% through the lost allowance — giving 60% total.
Adjusted net income is total income less gross personal pension contributions and gift aid donations. This means pension contributions and charity donations are pound-for-pound effective at pulling income back below £100,000 and eliminating the 60% rate entirely.
Key insight
A person earning £115,000 who makes a £15,000 gross pension contribution reduces adjusted net income to £100,000. They restore £7,500 of personal allowance saving an additional £3,000 in tax on top of the standard 40% pension relief.
Important
The trap applies to adjusted net income — not just employment income. Include rental income, dividends and savings interest when calculating whether you are in the zone.
02
Pension contributions — the primary solution
The most direct solution is a pension contribution that reduces adjusted net income to £100,000. For every £1 contributed inside the trap zone the effective tax relief is 60p — making pension contributions here uniquely powerful. A £10,000 gross pension contribution by someone earning £110,000 costs just £4,000 net after all reliefs.
Personal pension contributions receive 20% basic rate relief at source. The additional 20% higher rate relief plus the 20% from restored personal allowance are claimed through self-assessment. Salary sacrifice achieves the same result without a self-assessment claim as it reduces employment income directly.
Key insight
For every £1 contributed to a pension within the 60% trap zone the effective net cost after all tax relief is just 40p — the best return on a pension contribution available to any UK taxpayer.
Important
Pension contributions are capped at the annual allowance of £60,000. Check your available allowance including carry forward before making a large contribution.
03
Gift aid donations
Gift aid donations also reduce adjusted net income. A net donation of £8,000 is grossed up to £10,000. The donor claims 20% higher rate relief through self-assessment and the £10,000 gross gift also reduces adjusted net income by the full gross amount.
For someone at £110,000 a £10,000 gross gift aid donation reduces adjusted net income to £100,000 restoring the full personal allowance. Net cost to the donor: £4,000. The charity receives £10,000. Total tax saving: £6,000.
Key insight
A £10,000 gross gift aid donation by a taxpayer at £110,000 has an effective net cost of just £4,000 after all reliefs while the charity receives the full £10,000 — a 150% leverage effect.
Important
Gift aid requires the donor to have paid sufficient income tax or CGT to cover the basic rate tax reclaimed by the charity. Ensure your tax position supports the claim.
04
Salary and dividend structuring for directors
Company directors who control their remuneration can structure salary, dividends and pension contributions to keep adjusted net income at or below £100,000. A director taking £50,000 salary and £50,000 dividends sits exactly at the threshold.
For business owners with variable income, deferring a bonus or dividend into the next tax year can avoid the trap entirely in a high-income year. The optimal approach combines salary sacrifice, employer pension contributions and timed dividend declarations.
Key insight
A company director routing £25,000 of profit to a pension instead of dividends keeps adjusted net income at £100,000 saving £5,028 in tax versus taking the dividend — at a cost of just £10,000 in net income reduction.
Important
HMRC scrutinises remuneration arrangements between connected persons. Ensure salary levels are commercially justifiable and dividend payments reflect genuine entitlements.
05
Self-assessment and year-end planning
The 60% trap relief must be claimed through self-assessment. Pension and gift aid relief above the basic rate are not applied automatically. Filing self-assessment proactively and claiming all available reliefs is essential.
The optimal time to act is before 5 April. Making pension contributions or gift aid donations before the tax year ends cannot be undone retrospectively. Review your projected income in January each year and act before the deadline.
Key insight
Proactive planning before 5 April can eliminate the 60% trap entirely. The same saving cannot be achieved retrospectively — the tax year cannot be reopened once closed.
Important
Do not rely on HMRC to identify the planning opportunity. The onus is on the taxpayer to file self-assessment and claim all reliefs by the 31 January deadline.
Action checklist
- Calculate your adjusted net income including salary, dividends, rental income and interest
- If between £100,000 and £125,140 calculate the pension contribution needed to reach £100,000
- Check available carry forward pension allowance from the previous three tax years
- Consider gift aid donations to qualifying charities as a supplementary strategy
- If a company director model the optimal salary, dividend and pension split
- File self-assessment and claim all pension and gift aid relief proactively
- Act before 5 April — the year cannot be reopened retrospectively
Sources
- Income Tax Act 2007 section 35 personal allowance reduction
- HMRC adjusted net income guidance: gov.uk/guidance/adjusted-net-income
- HMRC Self Assessment: gov.uk/self-assessment-tax-returns
- OBR Economic and Fiscal Outlook 2025 frozen threshold analysis
- HMRC Tax relief on pension contributions: gov.uk/tax-on-your-private-pension/pension-tax-relief
Disclaimer: For information only. Not financial, tax or legal advice. Consult a qualified adviser before making decisions. Figures correct April 2026.
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