- Income between £100,000 and £125,140 faces an effective 60–62% marginal rate — higher than the 45% additional rate band above it.
- The cause: the £12,570 personal allowance is tapered away at £1 for every £2 earned above £100,000, creating a hidden double tax.
- The £100,000 threshold hasn't moved since 2010, so more people fall into the trap every year as wages rise.
- Parents of young children face an even steeper effective rate — lost free childcare can push the marginal rate above 80%.
- Pension contributions (especially salary sacrifice) are the main legitimate route out — they reduce adjusted net income without reducing your wealth.
It's called the 60% tax trap, and it sits between £100,000 and £125,140 of annual income. If you're approaching that range, or already in it, this is one of the most valuable pieces of tax knowledge available to you. There are legitimate, well-established ways to avoid it — but only if you know it's there.
Where the 60% comes from
The official UK income tax bands are straightforward:
- Personal allowance (tax-free): £12,570
- Basic rate (20%): up to £50,270
- Higher rate (40%): up to £125,140
- Additional rate (45%): above £125,140
Nowhere does it say 60%. So where does the trap come from?
The personal allowance — the £12,570 you can earn tax-free — gets taken away once your income passes £100,000. Specifically, you lose £1 of personal allowance for every £2 you earn above £100,000. By the time you hit £125,140, the entire £12,570 allowance is gone.
That sounds technical, but here's what it means in practice. Every extra £1 you earn between £100,000 and £125,140 is taxed two ways at once:
- The £1 itself is taxed at the higher rate of 40%
- You also lose 50p of your tax-free allowance, which means an additional 50p that was previously tax-free is now taxed at 40% — which costs you another 20p
Total tax on that extra £1: 40p + 20p = 60p. You keep 40p. Add National Insurance (2% at this level) and the effective marginal rate is roughly 62%.
This effect only exists in the £100,000–£125,140 band. Below £100,000, you keep 60p of every extra pound. Above £125,140, your allowance is already fully tapered away, so you "only" pay 47p (45% income tax + 2% NI) on each extra pound — actually less than in the trap zone.
It's one of the few places in any tax system where earning more can mean keeping a smaller share than someone earning either side of you.
What this looks like on a real pay rise
Imagine you're on £95,000 and you get a £10,000 pay rise to £105,000. You might reasonably expect to take home around £5,800 of it after higher-rate tax and NI.
In reality, the first £5,000 of the rise (taking you from £95,000 to £100,000) is taxed at the normal 42% (40% tax + 2% NI), so you keep £2,900.
The next £5,000 (taking you from £100,000 to £105,000) is taxed at 62% — so you keep £1,900.
Total kept from the £10,000 rise: £4,800, not £5,800. The trap quietly costs you £1,000.
If your pay rise takes you through the full trap zone — say from £95,000 to £130,000 — you'll lose around £5,000 to the personal allowance taper that you wouldn't have lost if you'd somehow earned the same amount without crossing those thresholds.
The income tax calculator models the personal allowance taper directly — enter your salary to see your actual marginal rate and take-home pay.
Who this affects
A common assumption is that the 60% trap only affects very high earners. It used to be relatively rare — but the £100,000 threshold has been frozen since 2010, while wages and inflation have moved on substantially. According to HMRC, well over a million people now have incomes in or near the trap, and the number grows every year as fiscal drag pulls more earners across the line.
It also has a second, particularly painful effect: at £100,000+ you lose the free childcare hours for children aged 3 and 4 in England, as well as the 30 hours of funded childcare. The cliff edge here is even sharper than the tax taper — losing childcare worth potentially £5,000–£7,000 a year because you earned £1 over the threshold.
For a parent of young children earning £101,000, the effective marginal rate including lost childcare can exceed 80%. There are documented cases of parents asking employers to reduce their salary because the maths is so unfavourable.
The good news: there are legitimate ways out
The 60% trap is mostly about income being measured at the wrong point. The fix, in nearly all cases, is to reduce your taxable income below £100,000 without actually being poorer. Two tools do almost all the work.
Pension contributions
This is the biggest lever by far. Pension contributions reduce your "adjusted net income" — the number HMRC uses to apply the taper.
If you earn £110,000 and contribute £10,000 to your pension, your adjusted net income drops to £100,000, and you sidestep the trap entirely. The £10,000 in your pension hasn't disappeared — it's just sitting in your retirement account instead of being taxed at 60%.
Better still, that £10,000 pension contribution effectively only cost you £4,000 of take-home pay, because the £10,000 you'd otherwise have taken home would have been taxed at 60%. It's one of the highest-return moves available in UK personal finance.
If your employer offers salary sacrifice, the saving is even bigger — you also save the National Insurance you'd otherwise pay, and often the employer adds some or all of their NI saving on top. Almost any salaried employee in this band should be exploring salary sacrifice with their employer if it's available.
The pension tax relief calculator shows the net cost of a contribution at your income level — in the trap zone, the numbers are often surprisingly low.
Gift Aid donations
Charitable donations via Gift Aid also reduce your adjusted net income. The numbers are smaller than pension contributions for most people, but the principle is the same: the donation is deducted from the income HMRC uses to apply the taper.
For someone in the trap zone, a £1,000 Gift Aid donation effectively costs around £400 of take-home pay (because the £1,000 of pre-tax income would have been taxed at 60%) but provides £1,250 to the charity (the charity claims back basic-rate tax). That's a notably efficient way to support causes you care about.
What doesn't work
A few things people sometimes try that don't help with the trap specifically:
- ISA contributions. ISAs are excellent for sheltering future returns from tax, but contributions don't reduce your taxable income for the year. They don't affect the taper.
- Asking to be paid in shares or bonuses. These still count as income in the year they're received (or vested, depending on structure).
- Reducing hours. This works, but most people would rather keep the income and just use a pension. Reducing hours throws away the gross income; pension contributions just defer it.
A few practical points
You don't need to be exactly on £100,000 — the more you reduce your adjusted net income below the threshold, the more of the taper you avoid. Even partial reductions help.
Your pension contributions need to be inside the annual allowance (currently £60,000 for most people, but tapered for very high earners) and within whatever your scheme permits.
If you're a parent of young children, the childcare cliff edge makes the trap meaningfully sharper — modelling your specific situation is worth the time, because the right pension contribution may pay you back several times over.
Tax year-end matters. Pension contributions made before 5 April count for that tax year. If you're approaching the end of the year and looking like you'll fall in the trap, it's worth checking what's possible before the deadline.
The bottom line
The 60% tax trap is one of the quietest large costs in the UK tax system. Hundreds of thousands of people walk into it every year without realising, often as the result of a pay rise that should have been good news.
The fix isn't complicated and it isn't aggressive tax planning — it's just using the pension allowance the government has explicitly designed for this kind of thing. For people in the £100,000–£125,140 band, increasing pension contributions is often the single highest-return financial move available.
Run your numbers through the income tax calculator to see how much the taper is costing you, then through the pension tax relief calculator to see how much a contribution would actually cost you in take-home terms. The gap between the two is usually larger than people expect.
This article is for general information only and isn't personal financial advice. Tax rules can change and depend on your individual circumstances. For complex situations it's worth speaking to a qualified tax adviser.