The 60% tax trap: what happens between £100,000 and £125,140

There is no tax band labelled “60%” anywhere on gov.uk. Yet for income between £100,000 and £125,140, that is exactly the effective rate you pay on every extra pound. It catches high earners by surprise because it’s created by two rules interacting, not by a single headline rate.

Why the rate is 60%, not 40%

Above £100,000, HMRC withdraws your £12,570 personal allowance at a rate of £1 for every £2 you earn. So when you earn an extra £100 in this zone, two things happen at once:

• You pay 40% higher-rate tax on the £100 itself — that’s £40.
• You also lose £50 of tax-free allowance. That £50 now becomes taxable at 40% — another £20 of tax.

£40 plus £20 is £60 of tax on £100 of extra earnings — a 60% effective marginal rate. Add 2% National Insurance and it is closer to 62%. It applies across the whole £25,140 span from £100,000 to £125,140, where the allowance finally reaches zero.

The trap in pounds

Buying your allowance back with a pension

Here is the elegant part. The taper is based on your adjusted net income — your income after pension contributions. So a pension contribution that brings you back below £100,000 restores the allowance you were losing. In the trap zone, that contribution effectively attracts around 60% relief: you save the 40% tax plus the reclaimed allowance.

The 60% trap isn’t the only cliff

The taper is the sharpest edge in the system, but two other thresholds bite in the same income range — and, helpfully, the same fix works for all three, because each is based on adjusted net income after pension contributions:

• The High Income Child Benefit Chargeclaws back Child Benefit once the higher earner’s income passes £60,000, removing it entirely by £80,000. For a family with two children that’s over £2,200 a year, effectively lifting the marginal rate in that band well above the headline 40%.
• Free childcare— 15 and 30 funded hours, and Tax-Free Childcare — is withdrawn completely if either parent’s adjusted income exceeds £100,000. Unlike the taper it’s a true cliff: one pound over and the whole entitlement, potentially thousands of pounds, disappears.

A pension contribution that lowers your adjusted net income can restore all three at once — the allowance, the Child Benefit and the childcare — which is why the salary sacrifice sumis worth doing carefully if you’re anywhere near these thresholds with young children.

Who the trap hits — and why it’s spreading

The £100,000 threshold has never risen since it was introduced in 2010. With frozen thresholds and rising salaries, more people are dragged into the trap every year — senior professionals, doctors, and anyone whose bonus tips them over £100,000. Because it’s an effective rate rather than a headline band, many don’t realise how much a pay rise into this zone actually costs until they see the payslip. The fix — pension contributions, and for parents, protecting benefits tied to adjusted income — is the same whoever you are.