What Is the 60% Tax Trap?
If your income is between £100,000 and £125,140, you face one of the most punishing effective tax rates in the UK system. On paper, the higher rate of income tax is 40%. In reality, for every £2 you earn above £100,000, you lose £1 of your Personal Allowance (the £12,570 of tax-free income everyone normally receives). This withdrawal creates an effective marginal tax rate of 60% on income in that band — and that is before National Insurance.
How the Personal Allowance Taper Works
The mechanics are straightforward but brutal. The standard Personal Allowance for 2026/27 is £12,570. Once your adjusted net income exceeds £100,000, HMRC reduces your Personal Allowance by £1 for every £2 of income above that threshold. By the time your income reaches £125,140, your Personal Allowance has been reduced to zero.
Here is what happens to a £1,000 pay rise when you earn £110,000:
- Income tax at 40%: £400
- Loss of £500 Personal Allowance (£1,000 ÷ 2), taxed at 40%: £200
- Total income tax on that £1,000: £600 — an effective rate of 60%
Add employee National Insurance at 2% on earnings above £50,270, and the real marginal rate climbs to 62%. For every extra £1,000 you earn, you keep just £380.
The Numbers in Context
To put this in perspective, someone earning £90,000 pays a marginal rate of 42% (40% income tax plus 2% NI). Someone earning £150,000 pays a marginal rate of 47% (45% additional rate plus 2% NI). But someone earning £110,000 pays an effective marginal rate of 62%. The person in the middle is taxed most heavily — a quirk of the system that catches many taxpayers by surprise.
Who Is Affected?
This trap affects anyone whose adjusted net income falls between £100,000 and £125,140. Adjusted net income includes:
- Salary and bonuses
- Benefits in kind (company car, private medical insurance, etc.)
- Rental income
- Dividend income
- Side hustle and self-employment profits
- Savings interest above the relevant allowance
It is reduced by certain deductions such as pension contributions paid via relief at source and Gift Aid donations (more on these below).
Strategies to Avoid or Reduce the 60% Trap
There are several perfectly legal ways to bring your adjusted net income below £100,000 — or at least reduce the amount caught in the trap.
1. Pension Contributions
The most common and effective strategy is to make additional pension contributions. Contributions made through salary sacrifice reduce your gross income directly. Contributions paid personally through a relief-at-source scheme are deducted from your adjusted net income for the purposes of the Personal Allowance taper.
For example, if you earn £115,000, contributing £15,000 to your pension brings your adjusted net income back to £100,000, fully restoring your Personal Allowance. The tax relief on that contribution effectively gives you back the full 60% — making pensions exceptionally tax-efficient at this income level.
2. Gift Aid Donations
Charitable donations made through Gift Aid are grossed up and deducted from your adjusted net income. If you donate £800 to charity, it is treated as a £1,000 gross donation (because the charity claims 20% basic rate relief). That £1,000 is deducted from your adjusted net income, potentially restoring £500 of Personal Allowance.
3. Salary Sacrifice for Other Benefits
Some employers offer salary sacrifice arrangements for benefits beyond pensions — for example, cycle-to-work schemes, electric vehicle leasing, or additional annual leave. These reduce your gross pay and can help bring you below the £100,000 threshold.
4. Timing of Income
If you have control over when you receive certain income (for example, a bonus or self-employment earnings), it may be worth timing it to avoid pushing your income above £100,000 in a single tax year. This requires careful planning and ideally professional advice.
The Interaction with Child Benefit
Taxpayers earning between £60,000 and £80,000 face a separate but related issue: the High Income Child Benefit Charge (HICBC). From April 2026, if either partner in a household earns above £60,000, the Child Benefit is gradually clawed back, reaching 100% at £80,000. While this is a different mechanism from the 60% trap, higher earners approaching £100,000 may face the combined effect of both the HICBC and the approaching Personal Allowance taper.
What About Dividends?
If you run a limited company and pay yourself partly in dividends, those dividends count towards your adjusted net income. The dividend allowance for 2026/27 is £500, and dividends above that are taxed at 33.75% at the higher rate. Within the £100,000–£125,140 band, dividends are effectively taxed at a higher rate due to the Personal Allowance withdrawal, though the exact calculation is more complex because dividends sit on top of other income in the tax computation.
See How the Trap Affects You
The best way to understand your personal situation is to run the numbers. Our free tax trap calculator shows you exactly how much extra tax you pay due to the Personal Allowance taper, and how much you could save through pension contributions or other strategies. Try it now — the results may surprise you.