The 60% Tax Trap: How Earning Over £100,000 Costs You More

The 60% tax trap happens because your personal allowance is withdrawn by £1 for every £2 of income above £100,000. On top of 40% higher-rate tax, that lost allowance is taxed too, creating an effective marginal rate of about 60% on income between £100,000 and £125,140, where the allowance runs out completely.

Why the rate spikes to 60%

The personal allowance is the amount of income you can earn each tax year before paying any income tax at all, £12,570 for most people. It is not a flat entitlement for high earners: once adjusted net income passes £100,000, HMRC withdraws it at a rate of £1 for every £2 earned above that threshold.

That withdrawal is what creates the trap. An extra £100 of salary in this band is taxed at 40% as normal, costing £40. But it also causes £50 of your personal allowance to disappear, and that £50 becomes taxable too, at 40%, costing another £20. In total, £60 of every £100 earned in this band goes to HMRC, an effective rate of 60%, even though the headline higher rate is 40%.

Where the trap starts and ends

The taper begins at £100,000 of adjusted net income and finishes at £125,140, the point at which the entire £12,570 allowance has been withdrawn. Above £125,140 the effective rate drops back to the ordinary 40% higher rate, since there is no more allowance left to lose.

Adjusted net income is not the same as your salary. It is total taxable income after certain deductions, including pension contributions paid gross and Gift Aid donations grossed up for basic rate tax, which is exactly why those two levers can pull someone back out of the taper.

Scotland's slightly different version

Scottish taxpayers pay income tax under separate bands and rates set by the Scottish Parliament. The personal allowance taper mechanism is a UK-wide rule set by HMRC and applies in the same way, but because the Scottish higher and advanced rates differ from the rest of the UK, the exact effective marginal rate in the equivalent band is not identical to the 60% figure for England, Wales and Northern Ireland.

Anyone in Scotland close to the £100,000 threshold should check the current Scottish rates on gov.uk rather than assume the rest-of-UK figure applies directly.

The other cliff edges at £100,000

The taper is not the only thing that bites at this threshold. Tax-Free Childcare and the 30 hours of free childcare for working parents in England both use a £100,000 adjusted net income test per parent. Going even £1 over the limit can mean losing the entire childcare benefit, not just a tapered slice of it, which for a family with two children in nursery can be worth many thousands of pounds a year.

A related but separate charge, the High Income Child Benefit Charge, uses a different threshold, currently starting at £60,000 of adjusted net income for the higher earner in a household and reaching full withdrawal of Child Benefit at £80,000. It is easy to conflate the two thresholds, so check which one actually applies to your situation.

How pension contributions pull you back out

Because adjusted net income is measured after pension contributions, increasing what you pay into a pension in the same tax year reduces the income HMRC uses for the taper test. A salary sacrifice arrangement is often the cleanest way to do this, since it reduces salary before it is paid, rather than requiring you to reclaim relief later through a tax return.

For someone earning just above £100,000, a contribution large enough to bring adjusted net income back under the threshold can restore the full personal allowance, on top of the pension tax relief already available, meaning the effective benefit of that contribution is higher than it would be at a normal income level.

What to check before acting

The right amount to contribute depends on total income, existing pension contributions, the annual allowance for pension tax relief, and whether other allowances like Tax-Free Childcare are also at stake. Because several thresholds can overlap in the same income band, a small change in salary, bonus timing or pension contribution can have an outsized effect on total take-home pay.

This is a case where the numbers genuinely matter more than general rules of thumb, so working through your own adjusted net income calculation, or getting help from an accountant or regulated financial adviser, is usually worthwhile if you are near this threshold.

Timing bonuses and overtime around the threshold

Because adjusted net income is measured over a tax year, the timing of a bonus, commission payment or overtime can matter as much as the amount. Someone whose salary sits just under £100,000 but who receives a bonus in March that pushes them over the line for that tax year alone can find themselves in the taper for a single year, even though their ongoing salary would not normally trigger it.

Some employers allow a bonus to be deferred into the next tax year, or sacrificed directly into a pension rather than paid as cash, either of which can keep adjusted net income for that year under £100,000. This only works if arranged before the bonus is paid, since income that has already been received cannot usually be pushed back retrospectively for tax purposes.

How to tell if you are in the taper without doing the maths yourself

HMRC estimates your expected income for the year and adjusts your PAYE tax code accordingly. If HMRC expects your adjusted net income to fall in the £100,000 to £125,140 band, your tax code will usually show a reduced personal allowance rather than the standard code, which changes how much tax is deducted from your pay each month rather than waiting until the end of the year.

If your tax code changes partway through the year and you are not sure why, it is worth checking whether it reflects an estimate of income in this band. A self-assessment tax return, or HMRC's online personal tax account, will show your actual adjusted net income and confirm whether the taper genuinely applies to you for that tax year.

A quick way to sense-check the numbers

A rough way to check whether you are affected is to add up your total income for the tax year, including salary, bonuses, benefits in kind and any rental or investment income, then subtract gross pension contributions and Gift Aid donations grossed up for basic rate tax. If the result sits between £100,000 and £125,140, the taper applies to some or all of that income.

This is a sense check, not a substitute for an actual calculation using HMRC's rules or professional advice, particularly if your income includes less common elements such as share options, dividends from your own company, or irregular self-employment income alongside employment.

Frequently asked questions

Why is it called a 60% tax trap if the higher rate is only 40%?

Because losing personal allowance in this band means an extra pound of income is taxed twice over: once directly at 40%, and again because losing 50p of allowance for every pound earned makes that 50p taxable too.

Does the 60% rate apply to all income over £100,000?

No. It only applies to the £25,140 band between £100,000 and £125,140. Above £125,140 the rate returns to the normal 40% higher rate, since there is no allowance left to withdraw.

Can pension contributions really remove the effect?

Yes, if they reduce your adjusted net income back under £100,000, since the taper is calculated on adjusted net income, not gross salary.

Does this affect the childcare thresholds too?

Tax-Free Childcare and 30 hours free childcare both use their own £100,000 adjusted net income test, and reducing your income through pension contributions can also protect those benefits.