Question 1

What is the 60% tax trap?

Accepted Answer

The 60% tax trap occurs because the personal allowance (£12,570 of tax-free income) is gradually withdrawn when your adjusted net income exceeds £100,000. For every £2 you earn above £100,000, you lose £1 of your personal allowance, meaning it disappears entirely once you reach £125,140. In this income band, your effective marginal tax rate is approximately 60% because you pay: 40% income tax on each additional pound earned 20% from lost personal allowance (since losing £1 of allowance means paying 40% tax on income that would have been tax-free — and you lose £1 for every £2 earned, that's 40% × 50% = 20%) 2% National Insurance (the rate above the upper earnings limit) Combined, this creates an effective marginal rate of 62% — higher than the 45% additional rate paid by those earning over £125,140.

Question 2

Who does the £100K tax trap affect?

Accepted Answer

According to HMRC figures, approximately 725,000 UK workers are affected by the personal allowance taper in 2025/26. This represents a dramatic increase from around 300,000 taxpayers in 2017/18, caused by the freeze on income tax thresholds while wages have risen with inflation. The trap affects anyone whose "adjusted net income" exceeds £100,000. This includes: Salaries, bonuses, and commissions Dividends above the £500 dividend allowance Savings interest above the personal savings allowance Rental income and self-employment profits Benefits in kind (company cars, private medical insurance, etc.) Income tax thresholds are frozen until at least 2028/29, meaning HMRC projects the number affected will rise to approximately 850,000 by 2028/29 through fiscal drag.

Question 3

Does the £100K trap apply to all types of income?

Accepted Answer

Yes, the personal allowance taper is based on your "adjusted net income", which includes virtually all taxable income. A one-off bonus, an unexpected dividend payment, or cashing in savings interest can unexpectedly push someone over the £100,000 threshold mid-year. However, certain deductions reduce your adjusted net income and can help you escape the trap: Pension contributions (both personal and salary sacrifice) Gift Aid donations (grossed up by 25%) Trading losses from self-employment This is why pension contributions are the most popular strategy for escaping the trap — they reduce your adjusted net income before the taper calculation, potentially restoring your full £12,570 personal allowance.

Question 4

How much pension contribution do I need to avoid the trap?

Accepted Answer

To fully escape the 60% trap, you need to reduce your adjusted net income to £100,000 or below. The formula is straightforward: Pension contribution needed = Your income − £100,000 For example, if you earn £115,000, contributing £15,000 to your pension would bring your taxable income to exactly £100,000, restoring your full £12,570 personal allowance and saving you around £9,000 in tax (compared to only £6,000 at the 40% rate). The annual allowance for pension contributions is £60,000 for 2025/26. If you haven't used your full allowance in previous years, you can carry forward unused amounts from the past three tax years, allowing contributions above £60,000 in a single year.

Question 5

Does salary sacrifice help with the £100K trap?

Accepted Answer

Salary sacrifice is particularly effective for escaping the trap because it provides multiple tax advantages over personal pension contributions. When you sacrifice salary into a pension, you save: Income tax: 40% (or up to 60% in the trap zone due to restored personal allowance) Employee National Insurance: 2% on the sacrificed amount Employer NI: Your employer saves 13.8% NI, which many employers pass on as additional pension contributions For someone earning £110,000 who sacrifices £10,000 into their pension, the true cost to their take-home pay is only around £3,800 — but their pension grows by £10,000 (or more if the employer passes on their NI savings). That's an effective discount of over 60% on pension contributions. Use our salary sacrifice calculator to see your exact savings.

Question 6

What about the 30 hours free childcare?

Accepted Answer

Parents earning over £100,000 lose eligibility for two valuable childcare benefits, and unlike the personal allowance, these are cliff edges with no gradual taper — earning £100,001 means losing the entire benefit immediately: 30 hours free childcare: Worth up to £3,000-£4,000 per year per child for 3-4 year olds Tax-Free Childcare: Worth up to £2,000 per child per year (£4,000 for disabled children) For a family with two children in nursery, crossing the £100,000 threshold could cost over £10,000 per year in lost childcare support — on top of the 62% marginal tax rate. This makes the case for salary sacrifice even stronger for parents, as staying below £100,000 preserves both your personal allowance and childcare benefits.

Question 7

Does the £100K trap apply in Scotland?

Accepted Answer

Yes, the personal allowance taper applies equally across the UK — but Scottish taxpayers face an even steeper marginal rate in the trap zone because of Scotland's higher income tax rates. Scottish taxpayers earning between £100,000 and £125,140 pay: 45% Advanced Rate (compared to 40% in England/Wales/NI) 22.5% from lost personal allowance (45% × 50% = 22.5%) 2% National Insurance This gives a total effective marginal rate of 69.5% — nearly 70p in every additional pound goes to tax. For Scottish taxpayers, the case for pension contributions to escape the trap is even more compelling, as the tax savings are proportionally higher.

Question 8

Will the government fix the 60% tax trap?

Accepted Answer

The personal allowance (£12,570) and income tax thresholds have been frozen since 2021 and will remain frozen until at least 2028/29 . With wages continuing to rise with inflation, this "fiscal drag" pulls more workers into higher tax brackets each year without any explicit tax rise. HMRC projects that by 2028/29, approximately 850,000 taxpayers will be affected by the personal allowance taper — up from 725,000 today and just 300,000 in 2017/18. There are currently no proposals from either major political party to reform the taper mechanism. Given this outlook, the most practical approach is to proactively manage your adjusted net income through pension contributions, salary sacrifice, or other tax-efficient strategies rather than waiting for legislative reform.

	At £100k	At £110,000	Diff
Gross Income	£100,000	£110,000	+£10,000
Personal Allowance	£12,570	£7,570	-£5,000
Tax & NI Paid	£31,442	£37,642	+£6,200
Take-Home	£68,558	£72,358	+£3,800

The £100K Tax Trap Explained

Where Does 60% Come From?

Your Marginal Rate at Every Salary

For Every £1 You Earn

Personal Allowance Taper

What the Trap Costs You

How to Escape the Trap

Pension Contributions

Frequently Asked Questions