The £100k tax trap: how the 60% rate works

If your income is between £100,000 and £125,140, part of it is taxed at an effective rate of 60%, because your personal allowance is taken away as your income rises.¹ With the personal allowance and higher-rate threshold set to stay where they are until 2030-31,² more people are being pulled into that band each year.

Here's how the 60% tax trap works and what can reduce it. Scotland has different income tax bands, so the figures below apply to the rest of the UK.¹

How the 60% tax trap works

Your personal allowance of £12,570 goes down by £1 for every £2 of adjusted net income over £100,000. It's gone completely at £125,140.¹

In that band, every extra £100 you earn is taxed at the 40% higher rate. It also takes away £50 of your personal allowance, and that £50 is then taxed at 40% too, which is another £20. So you pay £60 of tax on £100. If you're employed, National Insurance at 2% applies on top, which takes it to 62%.^1,3

Losing the whole allowance costs £5,028 a year in extra income tax (£12,570 at 40%).¹

Parents can lose more. If either parent's adjusted net income is over £100,000, the family can't claim Tax-Free Childcare, which is worth up to £2,000 a year per child, or the extra free childcare hours for working parents in England.^4,5,6

How many people the 100k tax trap affects

HMRC figures obtained by Rathbones show around 599,000 people had income between £100,000 and £120,000 in 2024-25. That's projected to rise to about 722,000 by 2028-29.⁷ Those numbers don't include people earning between £120,000 and £125,140, who are also in the trap.

What the Budget changed

Nothing. The Budget on 28 October 2026 left the personal allowance at £12,570, still withdrawn above £100,000 of adjusted net income, so the trap remains.⁸ The personal allowance and higher-rate threshold stay frozen until 2030/31.^2,9

Elisa Sofocli of Blick Rothenberg had said before the Budget that there was "no obvious cost-neutral solution" to the trap, because any fix either cuts tax for higher earners or raises it for a wider group.¹⁰ For everything else that was announced, see our Autumn Budget 2026 summary.

Reducing your adjusted net income

The trap is based on your adjusted net income, not your salary. Pension contributions and Gift Aid donations both reduce it. For contributions to a personal pension that get basic-rate relief at source, you deduct the grossed-up amount, so an £8,000 payment counts as £10,000.¹¹

Take someone earning £110,000 who pays an extra £10,000 gross into their pension. Their adjusted net income falls to £100,000 and they get their full personal allowance back. They save £4,000 of higher-rate tax on the contribution, and £2,000 on the £5,000 of allowance they get back. That's £6,000 of tax relief on a £10,000 contribution, ignoring National Insurance.^1,11

Salary sacrifice works in the same way and also saves National Insurance. From April 2029, the National Insurance saving will be capped at the first £2,000 of sacrificed contributions each year, but the income tax saving stays.¹²

There are limits. Pension contributions above the annual allowance, which is £60,000 for most people, are taxed, though you can usually carry forward unused allowance from the previous three tax years.¹³ If your threshold income is over £200,000 and your adjusted income is over £260,000, the allowance is cut by £1 for every £2 over £260,000, down to a minimum of £10,000. This is the tapered annual allowance.^13,14 Money paid into a pension usually can't be taken out until you're 55,¹⁵ so it only suits money you won't need before then.

What to do now

Work out your adjusted net income for this tax year before it ends on 5 April 2027, including any bonus, dividends and rental income. If you're close to £100,000, the size and timing of pension contributions can make a large difference to the tax you pay. If your employer offers salary sacrifice, ask how it works for your pension.

We help people in this position with retirement planning and tax planning. To talk through your position, book a consultation. The first meeting is at our cost.

The 60% tax trap: common questions

What is the 60% tax trap?

It's the effective 60% rate of income tax on income between £100,000 and £125,140. It happens because the personal allowance is reduced by £1 for every £2 of adjusted net income over £100,000.¹

How can you get out of the £100k tax trap?

By reducing your adjusted net income, for example with pension contributions or Gift Aid donations.¹¹ Pension contributions count towards your annual allowance, so check how much you have available first.¹³

Sources

Sources checked on 28 October 2026. Worked examples are illustrations using the published tax rates.

1. GOV.UK, Income Tax rates and allowances: income over £100,000.
2. HM Treasury, Budget 2025: Overview of tax legislation and rates, section 1.1.
3. HMRC, National Insurance rates and categories, 2026/27 rates.
4. GOV.UK, Tax-Free Childcare.
5. GOV.UK, Tax-Free Childcare: check if you're eligible.
6. GOV.UK, 30 hours free childcare.
7. MoneyWeek, Hundreds of thousands more to be pulled into 60% tax trap, 21 November 2025, reporting HMRC figures obtained by Rathbones.
8. HMRC, Budget 2026: Annex A, rates and allowances, 28 October 2026.
9. Unbiased, Autumn Budget 2026: what the key announcements mean for your money, 28 October 2026.
10. London Loves Business, Budget tax warning: £100k cliff edge leaves workers facing 60% effective tax rate, 5 October 2026, quoting Blick Rothenberg.
11. HMRC, Adjusted net income.
12. GOV.UK, Changes to salary sacrifice for pensions from April 2029.
13. GOV.UK, Tax on your private pension contributions: annual allowance.
14. HMRC, Work out your tapered annual allowance.
15. GOV.UK, Early retirement: personal and workplace pensions.