The £100k 60% tax trap, in plain English

The number HMRC doesn't put on your payslip

On paper, the UK income tax system has three rates above the Personal Allowance: 20% basic, 40% higher, 45% additional. On paper. The reality between £100,000 and £125,140 of taxable income is that every extra £1 earned costs you 60p in tax and 2p in National Insurance — a 62% marginal cost. Step £1 in or £1 out of the window and you're back at 42%. The trap doesn't appear on any payslip line item, and HMRC has no statutory obligation to warn you about it. It is, in every sense that matters, hidden.

The good news: it is also entirely mechanical. Once you understand what's happening, you can avoid it for as little as £100 of monthly salary sacrifice. The bad news: most people don't realise they're inside it until their accountant cross-references their P60 in May.

Where the trap comes from

Your Personal Allowance is the £12,570 of income on which you pay no tax. For most people it just sits there year after year. For high earners, since April 2010, HMRC reduces it at a fixed rate once income crosses a threshold:

For every £2 of taxable income above £100,000, Personal Allowance is reduced by £1.

At £100,000 of income you have the full £12,570. At £125,140 — the crossover where the £25,140 above £100k has clawed back 100% of the £12,570 — you have none of it. Everything in between is the taper zone.

The math of an extra £1

Suppose you're earning £105,000 and your manager wants to give you a £1 pay rise. What happens?

• The £1 itself is in the higher-rate band, so HMRC takes 40p as income tax.
• Because you're £1 deeper into the taper, your Personal Allowance drops by 50p. That 50p of previously-tax-free income is now taxed — also at 40%, because all of it sits in your higher-rate band — so HMRC takes another 20p.
• Total income tax on the £1: 60p.
• National Insurance on the £1 is the 2% upper rate (you're above the £50,270 UEL), so another 2p.

Net of all that: you keep 38p of the £1 your employer paid out. Drop the rise and you'd have kept 58p of the same £1 if your salary had been £49,000 instead. The Government is essentially withdrawing your PA at the marginal rate you'd otherwise have paid on it, on top of the tax you owe on the rise — and because the higher rate is 40% and you lose 50p of PA per £1, the math always lands at 60% income tax, regardless of where in the £100k–£125k window you are.

Worked example: a £110k salary

£110,000 of gross is £10,000 into the taper. PA reduces by half of £10,000 = £5,000, dropping from £12,570 to £7,570. The income that used to be tax-free is now charged at 40%, so HMRC's tax take rises by £5,000 × 40% = £2,000 purely from the taper — over and above the £4,000 of basic-rate tax on the £10,000 above £100k.

The exit: salary sacrifice

Salary sacrifice into a workplace pension is the most efficient way out of the trap because it reduces the same number HMRC is using to taper your PA: your taxable income. Sacrifice exactly the amount that puts you back at £100,000 of taxable income, and you reclaim the full £12,570 PA at a marginal cost of just 38p per £1 sacrificed.

Continuing the £110,000 example: sacrifice £10,000 a year (≈ £833 a month) into your pension. Your taxable income drops to £100,000. PA snaps back to £12,570. Tax falls by:

• £10,000 × 40% on the slice you removed = £4,000;
• £5,000 × 40% on the PA you recovered = £2,000;
• Total income tax saving: £6,000.

Class 1 NI also drops by 2% × £10,000 = £200. Your employer saves 15% × £10,000 = £1,500 in Secondary Class 1 NI, which under most UK group pension schemes flows back into your pension pot. The net effect:

• You give up £10,000 of headline gross.
• Your take-home falls by just £3,800 (£10,000 − £6,000 income tax − £200 NI).
• Your pension pot grows by £10,000 (plus the £1,500 employer NI saving in many schemes).

Every £1 of take-home you give up turns into roughly £3.03 of pension. There is no other lever in UK personal finance with that multiplier.

Practical traps within the trap

1. Bonuses and one-off payments

A bonus that pushes you into the taper zone is taxed at the headline 40% on the day, but the PA clawback applies to your annual total. The under-deduction will land in your P800 calculation or — if you're a Self-Assessment filer — your January bill. Many people are blindsided by a tax bill in January for a bonus they spent in March.

2. Tax code adjustments

HMRC sometimes pre-empts the taper by issuing a reduced tax code, e.g. 757L instead of 1257L. That keeps things accurate in-year, but it also makes it easy to forget the trap exists until your salary rises and the code stops compensating.

3. NI category-A taxpayers only

The 62% combined marginal assumes Category A NI (i.e. the 8% main rate on earnings under the UEL and 2% upper rate above it). If you're at state-pension age and NI Cat C-exempt, the marginal in the trap is the 60% income-tax figure flat — still painful, but not 62%.

What if I can't sacrifice into a pension?

Other vehicles that reduce taxable income similarly:

• Cycle-to-work schemes (capped, modest sums but legitimate sacrifice).
• EV salary sacrifice for an electric company car — large slabs of sacrifice, but the 2% BIK rate means the math is more complex.
• Charitable giving via Payroll Giving — reduces taxable income directly, no Gift Aid reclaim needed, but the employer must operate the scheme.
• Personal pension contributions from net pay — give you tax relief but not NI relief, and you have to claim the higher-rate slice via Self-Assessment. Worse leverage than sacrifice, but better than nothing.

One number to take away

If your taxable income is between £100,000 and £125,140 in 2026/27, every £1 of salary sacrifice into your pension recovers 50p of Personal Allowance and saves you 62p in tax and NI — a return on your "investment" of about 1.6× before the pension pot ever appreciates.

Try it with your own figures: open the Salary Calculator and watch the 60% Tax Trap Active banner kick in. Or go straight to the Salary Sacrifice Optimiser, where the Maximise Tax Efficiency button computes the exact sacrifice that drops you to £100,000 and recovers the full £12,570 allowance.