The 60% Tax Trap: What It Is, Who It Hits, and How to Escape It

The “60% tax trap” is the name given to a feature of the UK tax system that often surprises people when they start earning over £100,000.

The 60% tax trap affects people in the UK whose adjusted net income is between £100,000 and £125,140 (using current income tax thresholds).

Those most commonly affected include:

• Employees receiving a pay rise, bonus or commission that takes their income above £100,000.
• Company directors who choose to take a higher salary.
• Self-employed people with profits in the affected income range.
• Higher earners with taxable rental income or investment income that pushes their adjusted net income above £100,000.
• People with multiple sources of income who unintentionally cross the £100,000 threshold.

Many people don’t realise they’re affected until they complete a tax return or notice that a pay rise has resulted in a much smaller increase in their take-home pay than expected. Because the loss of the Personal Allowance isn’t always obvious, it’s often referred to as a “tax trap.”

You won’t find the 60% figure talked about officially in HMRC materials.

The 60% figure arises when two features of the tax system interact: the higher-rate income tax band, and the gradual withdrawal of the Personal Allowance once your adjusted net income exceeds £100,000.

These figures are correct as of 06/04/2026.

Aside from a few exceptional cases, all UK earners get a “Personal Allowance”. This is the amount of income you can earn each tax year before you start paying income tax.

Currently, that’s £12,570.

So, for example:

• If you earn £50,000, because the first £12,570 is tax-free, you only pay income tax on the remaining £37,430.

However, once your income passes £100,000, your Personal Allowance starts to diminish. And by £125,140, it’s gone completely.

That means, you end up paying tax on a greater proportion of your earnings.

How much more?

For every £2 you earn above £100,000, you lose £1 of your allowance.
So, although you’ll still officially be paying 40% income tax as a higher-rate taxpayer, your effective marginal income tax rate – the amount you pay on that particular slice of income – becomes 60%.

Neither. It’s what is known as adjusted net income.

Adjusted net income = total pre-tax income on anything you earn that should be taxed (e.g. salary, rental income, dividends) minus any pension contributions and Gift Aid charity donations. Some trading losses can also lower your adjusted net income.

Loss of free childcare allowance
Parents face a double hit. If either parent earns over £100k, you lose eligibility for:

⚠️ Tax-free childcare
⚠️ 30 hours of free childcare (all or half, depending on your child’s age)
Add in the loss of Child Benefit (fully gone at £80k), and childcare costs can rocket.
Example

You have a two-year-old and a four-year-old. Your salary rises from £99,999 to £104,999. That additional £5,000 means you:

💸 Lose £1,000 of Personal Allowance
💸 Lose £2,000 in tax-free childcare
💸 Lose 30 hours funded care for your two-year-old
💸 Lose half the 30 hours for your four-year-old

Combined, that could leave you £22,593 worse off in a year.

If you’re a parent and you or your partner have an income of over £100k per year, then it is even more important that you understand the 60% tax trap – and the legitimate ways to avoid it.

The good news is there are perfectly legitimate ways to avoid paying this inflated tax rate!

1️⃣ Increase pension contributions

The most common method is to increase pension contributions.
Contributing more to your pension can bring you back under that key £100,000 threshold and mean you boost your retirement income at the same time.

Potential downsides:
❌ The money from your wage increase is locked away until retirement
❌ Tax relief is limited to £60,000 (less if you’re a very high earner)
⚖️ If your salary is just over £100,000, there may be more benefits to this approach than negatives. However, if your salary is much higher, the negatives could outweigh the positives.

2️⃣ Use salary sacrifice schemes
Salary sacrifice is an arrangement where you agree to give up part of your salary in exchange for an employer-provided benefit, such as pension contributions, an electric company car, gym membership, private health cover, laptops, phones or childcare.

Because your salary is lower, your adjusted net income is reduced too.
If your employer offers salary sacrifice arrangements, this can help you keep your income out of that £100k danger zone.

3️⃣ Make Gift Aid contributions

Ticking that ‘Gift Aid’ box when donating items or money to charity, or buying entry tickets to properties owned by charitable organisations, can help nudge your adjusted net income back down below the £100k threshold again.

4️⃣ Hold back on taking all your income in one go

If a bonus or payment would push you over £100k, ask if it can be split across two tax years.

If your income is £110,000 and you contribute £10,000 to your pension (subject to the pension tax relief rules and your available annual allowance), your adjusted income for this purpose falls back to £100,000.

That restores your full Personal Allowance, meaning you avoid the effective 60% band while also increasing your retirement savings.

Other methods for lowering adjusted net income include making charitable donations through Gift Aid or declaring certain trading losses.

Of course, whether any of these are suitable or appropriate will depend on your personal circumstances.

• Adjusted net income → Your total taxable income minus pension contributions, Gift Aid donations, or certain losses. This is what HMRC looks at for the £100k trap.
• Personal Allowance → The slice of income you can earn tax-free (£12,570 in 2025/26). It shrinks once you earn over £100k.
• Fiscal drag → Tax thresholds stay frozen while wages rise, so more people end up in higher tax brackets.
• Salary sacrifice → Swapping part of your salary for benefits (like childcare, a bike, or health cover) to reduce your taxable pay.
• Gift Aid → A system where charities reclaim tax on your donation — and you reduce your taxable income.