The 60% Tax Trap Explained

If your income creeps above £100,000, you may be paying far more tax on part of it than the headline rates suggest. This is often called the 60% tax trap, and many people fall into it without realising.

Between £100,000 and £125,140 of income, you effectively pay 60% tax on that slice of earnings. This happens because your tax-free Personal Allowance is gradually withdrawn as your income rises, so each extra pound is taxed twice over.

In this insight, we explain why the 60% trap exists, who it affects, and the practical steps — chiefly pension contributions — that can help you avoid it.

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Key Takeaways

• The Personal Allowance (£12,570) is reduced by £1 for every £2 you earn over £100,000, disappearing completely at £125,140.
• Losing your allowance on top of paying 40% higher-rate tax creates an effective marginal rate of around 60% on income in this band.
• Pension contributions and other allowable deductions reduce your "adjusted net income", which can pull you back below the trap.
• This is general information, not personal advice — everyone's circumstances differ.

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Why the 60% Tax Trap Happens

For the 2026/27 tax year, everyone starts with a Personal Allowance of £12,570 — the amount you can earn before income tax applies. The standard tax bands (in England, Wales and Northern Ireland) are:

• Basic rate 20%: £12,571 to £50,270
• Higher rate 40%: £50,271 to £125,140
• Additional rate 45%: over £125,140

The catch is that once your income passes £100,000, your Personal Allowance is tapered away by £1 for every £2 of income above that threshold. By the time you reach £125,140, the whole £12,570 allowance has gone.

The Maths Behind the 60% Rate

Take someone earning exactly £100,000 who receives a £100 pay rise. That extra £100 is taxed at the higher rate of 40%, so £40 goes in tax straight away.

But the pay rise also strips away £50 of Personal Allowance (£1 for every £2 over £100,000). That £50, which used to be tax-free, is now taxed at 40% too — an extra £20.

So from the £100 pay rise, you lose £40 plus £20, or £60 in total. Your effective marginal tax rate on that slice of income is 60%. Once your income passes £125,140, the allowance is fully gone and the rate settles back to the additional rate of 45%.

How to Avoid the 60% Tax Trap

The good news is that the trap is based on your adjusted net income, not simply your salary. Reducing your adjusted net income back towards £100,000 can restore some or all of your Personal Allowance. The most common ways to do this are:

• Pension contributions. Paying more into a pension reduces your adjusted net income. A contribution made from income inside the trap can effectively attract around 60% tax relief, which is why pensions are the classic tool here. The standard annual allowance for pension contributions is £60,000 (though this can be tapered for very high earners).
• Gift Aid donations. Charitable donations made under Gift Aid also reduce your adjusted net income.
• Salary sacrifice. Some employers let you exchange salary for pension contributions or other benefits, lowering your taxable pay.

Because a pound contributed to a pension inside this band can save you roughly 60p in tax, pensions are often the most efficient response. Our guide to 10 ways to make the most of your pension covers the wider options.

An Example

Priya earns £110,000. Without any action, £10,000 of her income sits inside the 60% band, and she has lost £5,000 of her Personal Allowance.

If she pays £10,000 into her pension, her adjusted net income falls to £100,000. Her full Personal Allowance is restored, and the £10,000 that would have been taxed heavily is now invested for her retirement. The effective tax saving on that contribution is substantial.

This is a simplified illustration. The right amount to contribute depends on your total income, other allowances and your retirement plans, so it's worth taking financial advice if you earn over £100k.

Don't Forget Your Other Allowances

Escaping the 60% trap isn't only about pensions. Tax-efficient wrappers help you keep more of what's left. An ISA allowance lets you save or invest up to £20,000 a year with tax-free returns, which is especially valuable once your income is high enough that savings and dividend allowances are squeezed.

Frequently Asked Questions

Is the 60% tax trap an official tax rate?

No. There is no official 60% band. It's the effective rate that results from paying 40% tax while also losing your Personal Allowance across the £100,000 to £125,140 range.

Does the trap apply in Scotland?

Scottish income tax bands differ, but the Personal Allowance taper above £100,000 is set UK-wide, so Scottish taxpayers face a similar effect at slightly different combined rates.

What counts as income for the £100,000 threshold?

It's your adjusted net income — broadly your total taxable income (salary, bonus, rental, savings, dividends and more) less certain deductions such as pension contributions and Gift Aid.

Can bonuses push me into the trap?

Yes. A bonus that lifts your income above £100,000 can be taxed at the effective 60% rate. Some people ask their employer to pay a bonus into their pension to avoid this.

For the exact rules and to check your own figures, always refer to GOV.UK or speak to a qualified adviser.