The 60% Tax Trap Explained: How £100k Earners Can Avoid It (2025/26)
Earning over £100,000 in the UK? You might be paying an effective tax rate of 60%. Here is how the Personal Allowance taper works and how to legally avoid it.
If you have recently received a pay rise taking you over £100,000, you might be in for a nasty surprise. Many high earners in the UK unwittingly drift into an effective tax rate of 60%.
This is known as the "60% Tax Trap" (or the Personal Allowance Taper), and it is one of the most punitive parts of the UK tax system.
In this guide, we will explain exactly how it works, calculate the cost, and show you how to avoid it using pension contributions.
For every £2 you earn between £100,000 and £125,140, you lose £1 of your tax-free Personal Allowance. This creates an effective 60% tax rate on that slice of income.
What is the 60% Tax Trap?
In the UK, the standard Personal Allowance (the amount you can earn tax-free) is £12,570. However, the government deems that high earners do not need this allowance.
Once your Adjusted Net Income goes above £100,000, your Personal Allowance is reduced by £1 for every £2 you earn above that threshold.
The Math: Why is it 60%?
It is not officially a "60% tax bracket" — you won't see it listed on HMRC's website. It is a mathematical anomaly caused by two things happening at once:
- 40% Income Tax: You pay 40% tax on the income itself (as a Higher Rate taxpayer).
- 20% Lost Allowance: By earning more, you lose some of your tax-free allowance, exposing more of your previous income to tax.
Example: Imagine you earn £100,000. You have your full £12,570 allowance. Now imagine you earn £100,100.
- You pay 40% tax on that extra £100 = £40 tax.
- Your Personal Allowance drops by £50 (from £12,570 to £12,520).
- That £50 used to be tax-free, but now it is taxed at 40% = £20 tax.
Total Tax on £100: £40 + £20 = £60. Effective Rate: 60%.
When Does it Stop?
The trap applies until your Personal Allowance reaches zero. Since the allowance is £12,570, it tapers to zero once you earn £125,140 (£100,000 + 2 × £12,570).
- Income £100,000 - £125,140: You pay 60% effective tax.
- Income £125,140+: You revert to the standard Additional Rate of 45%.
Visualizing the Trap
How to Beat the Trap (Legally)
There are two main ways to reduce your "Adjusted Net Income" back down to £100,000, ensuring you keep your full Personal Allowance and avoid the 60% rate.
1. Pension Contributions (Salary Sacrifice)
This is the most efficient method. By agreeing to a Salary Sacrifice arrangement, your employer puts the "extra" money directly into your pension before tax is calculated.
Scenario: You earn £110,000.
- Option A (Take the cash): You pay 60% tax on the £10,000 above £100k. You keep just £4,000.
- Option B (Pension): You put the £10,000 into your pension. You pay £0 tax on it. The full £10,000 is invested for your future.
The ROI is instant: You are getting an immediate 60% tax relief on that contribution.
2. Charitable Donations
Donating to charity via Gift Aid also reduces your adjusted net income. If you donate £800, the charity claims £200 Gift Aid (making it £1,000). You can then deduct this £1,000 gross donation from your income when calculating your Personal Allowance taper.
Check Your Numbers
Don't guess. Use our calculator to see exactly how much tax you will pay.
Disclaimer: This article provides general information and does not constitute financial advice. Tax rules can change. For specific advice, consult a qualified accountant or Independent Financial Adviser.