What is the 60% Tax Trap and How Do You Avoid It?

If your salary is approaching £100,000, you need to know about the 60% tax trap — one of the most punishing quirks in the UK tax system. In the band between £100,000 and £125,140, every extra pound you earn is effectively taxed at 60%. Here's why it happens and, crucially, how to avoid it.

Why Does the 60% Tax Trap Exist?

In the UK, everyone receives a tax-free Personal Allowance of £12,570. But once your income exceeds £100,000, HMRC starts withdrawing this allowance at a rate of £1 for every £2 earned above £100,000.

By the time your income reaches £125,140, your Personal Allowance has been completely withdrawn — reduced to zero. The income that used to be tax-free is now taxed at 40%, on top of the 40% higher rate tax and 2% National Insurance you're already paying on earnings in that band.

Add it all up and the effective marginal rate between £100,000 and £125,140 is:

A Real-World Example

Let's look at what this actually means in practice for two employees in 2026/27:

Person B earned £10,000 more than Person A but only kept £6,000 of it — an effective rate of 60%. This is why many people refer to the band as a "trap": the reward for earning more is significantly reduced.

How to Legally Avoid the 60% Tax Trap

The good news is that the 60% trap is completely avoidable with the right planning. The key is to reduce your adjusted net income below £100,000. Here are the most effective ways to do it:

1. Make Pension Contributions

This is the most powerful tool available. Contributions to a workplace pension via salary sacrifice, or to a personal pension, directly reduce your adjusted net income. If your salary is £110,000 and you contribute £10,000 to a pension, your adjusted net income drops back to £100,000 — taking you out of the trap entirely.

Even better: the pension contribution that saves you from 60% tax effectively receives 60% tax relief — making it one of the most efficient investments you can make.

2. Gift Aid Donations

Donations to charity through Gift Aid also reduce your adjusted net income. If you donate £8,000 to charity, the grossed-up value (£10,000) is deducted from your adjusted net income. This is less flexible than pensions but worth considering if you already give to charity.

3. Consider Your Bonus Timing

If you're close to the £100,000 threshold and due a bonus, it may be worth asking your employer if the bonus can be paid in a different tax year, or taken as additional pension contributions rather than cash.

4. Claim All Allowable Expenses

If you're self-employed, ensure all allowable business expenses are claimed to reduce your taxable profit. Similarly, if you have rental income, claim all allowable property expenses.

The Impact of Fiscal Drag

The 60% trap is becoming more common every year. The £100,000 threshold has not increased since it was introduced, while wages have risen with inflation. HMRC estimates that hundreds of thousands more people fall into this band each year — many without realising it.

If you received a pay rise recently that took you above £100,000, it's worth checking your tax position now rather than waiting for a surprise tax bill through Self Assessment.

Frequently Asked Questions

Key Takeaways

• The 60% tax trap affects earners between £100,000 and £125,140
• It's caused by the gradual withdrawal of the Personal Allowance above £100,000
• Pension contributions are the most effective way to avoid it
• Gift Aid donations also reduce your adjusted net income
• More people fall into the trap every year due to frozen thresholds and rising wages
• Always consult a financial adviser for personalised guidance

This article is for general information only and does not constitute financial advice. Tax rules can change — always verify current rates at GOV.UK and consult a qualified financial adviser for personalised guidance.