The 60% tax trap is one of the most punishing features of the UK tax system, yet millions of earners are unaware they're in it until they see their marginal pound being taxed at 60%. This comprehensive guide explains exactly how it works and, most importantly, proven strategies to reduce or escape it entirely.
What Is the 60% Tax Trap?
The 60% tax trap affects anyone earning between £100,000 and £125,140. In this earnings range, your Personal Allowance (£12,570 for 2025/26) is gradually withdrawn at a rate of £1 for every £2 you earn over £100,000.
This creates an effective marginal tax rate of 60% - significantly higher than:
- The basic rate (20%)
- The higher rate (40%)
- Even the additional rate (45%)
The mathematics:
- You pay 40% tax on your actual earnings in this bracket
- Plus, you lose £1 of Personal Allowance for every £2 earned, meaning £1 of previously tax-free income becomes taxable at 40%
- Combined effect: £2 earned = 40% tax on £2 + 40% tax on £1 lost allowance = 60% marginal rate
Use our Tax Calculator to see the exact impact on your take-home pay at different salary levels.
How the Personal Allowance Taper Works
The Personal Allowance taper mechanics:
At £100,000:
- Full Personal Allowance: £12,570
- Tax-free income: £12,570
- Taxable income: £87,430
At £112,570 (halfway through trap):
- Personal Allowance tapered by: £12,570 ÷ 2 = £6,285
- Remaining Personal Allowance: £6,285
- Tax-free income: £6,285
- Taxable income: £106,285
At £125,140 (end of trap):
- Personal Allowance tapered by: £12,570 fully removed
- Remaining Personal Allowance: £0
- Tax-free income: £0
- Taxable income: £125,140
This happens automatically through your tax code. If you earn in this range, check your tax code - it will show a reduced Personal Allowance, typically coded as something like 628L (half allowance) or 0T (no allowance).
Real Examples: The 60% Tax Trap in Action
Example 1: £100,000 vs £101,000 Salary
Earning £100,000: - Personal Allowance: £12,570 - Taxable income: £87,430 - Tax: £28,432 - Take-home (after tax and NI): £68,203
Earning £101,000 (£1,000 pay raise): - Personal Allowance: £12,070 (lost £500) - Taxable income: £88,930 - Tax: £29,032 - Take-home: £68,603 - Net increase from £1,000 raise: £400 (60% tax)
For every £1,000 pay rise in this zone, you keep only £400. The effective tax rate is 60%.
Example 2: £110,000 vs £115,000 vs £120,000
| Salary | Personal Allowance | Total Tax + NI | Take-Home | Effective Rate on Increase |
|---|---|---|---|---|
| £110,000 | £7,570 | £35,642 | £71,049 | - |
| £115,000 | £5,070 | £38,642 | £72,849 | 64% |
| £120,000 | £2,570 | £41,642 | £74,649 | 64% |
The £10,000 increase from £110k to £120k yields only £3,600 extra take-home - an effective rate of 64% (including NI).
Compare different salary levels with our Salary Comparison Calculator to see the trap's impact.
Example 3: The £125,140 Cliff Edge
At exactly £125,140, your Personal Allowance reaches £0. Earning £125,141 puts you in the 45% additional rate band but your marginal rate actually decreases from 60% to 47% (45% tax + 2% NI).
This creates the bizarre situation where earning more gives you a lower marginal tax rate!
Why the 60% Tax Trap Exists
The Personal Allowance taper was introduced in 2010 as a "stealth tax" on higher earners. Instead of raising the higher rate from 40% to 45% across the board, the government targeted those earning £100k-£125k specifically.
Political reasoning:
- Affects relatively few people (~1.5 million)
- Not technically a new tax rate (so less politically visible)
- Raises significant revenue from high earners
Unfair aspects:
- Creates marginal rates higher than the top rate
- Particularly punishes those just breaking into six figures
- Combined with other tapers (Child Benefit, childcare support), some face 70%+ marginal rates
Strategies to Reduce the 60% Tax Trap
Strategy 1: Pension Contributions (Most Effective)
Salary sacrifice or personal pension contributions reduce your "adjusted net income" for Personal Allowance taper purposes.
Example: £110,000 salary, £15,000 pension contribution
Without pension contribution:
- Salary: £110,000
- Personal Allowance: £7,570
- Tax + NI: £35,642
- Take-home: £71,049
With £15,000 pension contribution: - Adjusted net income: £95,000 (below £100k threshold!) - Personal Allowance: £12,570 (fully restored) - Tax + NI: £25,532 - Take-home after pension: £56,159 - Pension pot: £15,000 - Total wealth: £71,159 - Gain: £110 + restored benefits
The maths: Contributing £15,000 to escape the trap costs you only £9,000 in take-home pay due to the 60% tax relief. Your pension receives the full £15,000.
Additional benefit: If you have children and earn over £60k, reducing income below £60k also avoids the High Income Child Benefit Charge.
Calculate your pension savings with our Pension Contribution Calculator.
Strategy 2: Salary Sacrifice for Benefits
Beyond pensions, salary sacrifice for other benefits also reduces your adjusted net income:
- Electric vehicle leasing - Sacrifice gross salary for EV, reducing taxable income
- Cycle to work scheme - Up to £1,000-£3,000 sacrifice
- Childcare vouchers (if existing scheme) - Up to £11,000/year sacrifice
- Additional holiday purchase - Sacrifice salary for extra annual leave
These won't have the same impact as pension contributions but still help.
Learn more about salary sacrifice arrangements.
Strategy 3: Charitable Donations (Gift Aid)
Charitable donations through Gift Aid extend your basic and higher rate bands, effectively reducing your adjusted net income for Personal Allowance purposes.
Example: £110,000 salary, £5,000 charity donation - Adjusted income: £106,000 (for taper calculation) - Personal Allowance restored by: £2,000 - Extra tax relief: £800 - Net cost of £5,000 donation: £2,200
This is less efficient than pensions but still valuable if you're charitably inclined.
Strategy 4: Trading Income for Benefits
Some employers offer benefits you can opt into that reduce your cash salary:
- Enhanced pension matching
- Private medical insurance (taxed as benefit, but lower value than salary)
- Death in service improvements
- Income protection insurance
These typically save some tax, though not as dramatically as pensions.
Strategy 5: Split Income with Spouse (Limited)
If married, consider:
- Dividend income from a jointly-owned company (if applicable)
- Rental income from jointly-owned property (split differently if beneficial)
- Marriage Allowance transfer (though this doesn't help with taper directly)
This requires professional tax advice for complex structures.
Strategy 6: Time Large Bonuses
If you receive bonuses, request they're paid across tax years to avoid spikes into the trap.
Example: £90,000 salary + £20,000 bonus in one year = £110,000 (in the trap) Alternative: £90,000 + £10,000 bonus in Year 1, £90,000 + £10,000 in Year 2 = never in trap
This requires employer cooperation but can save thousands.
The 60% Trap Combined with Other Tapers
The Personal Allowance taper compounds with other means-tested benefits:
Child Benefit High Income Charge (HICBC)
If you or your partner earn £60,000-£80,000, you face an additional effective tax rate of 1% of Child Benefit for each £200 of income over £60,000.
With 2 children:
- Child Benefit value: ~£2,200/year
- Additional charge rate: 11% (£2,200 ÷ £20,000)
Combined rates for £100k-£125k earner with 2 children losing benefit: - 60% Personal Allowance taper - 0% Child Benefit taper (already fully lost by £80k) - Total: 60% marginal rate
Tax-Free Childcare
Tax-Free Childcare eligibility ends at £100,000 individual income. Crossing this threshold loses:
- Up to £2,000/year per child in government top-ups
- Combined with PA taper, marginal rate can hit 70%+
30 Hours Free Childcare
Similarly cut off at £100,000, worth £5,000-£7,000/year depending on location. Losing this benefit creates enormous marginal rates for parents.
Real scenario: Parent earning £99,000 with two children:
- Receives Tax-Free Childcare: +£4,000
- Receives 30 hours free childcare: +£6,000
- Has full Personal Allowance: Worth ~£5,000
Earning £125,000 instead:
- Lost Tax-Free Childcare: -£4,000
- Lost 30 hours free childcare: -£6,000
- Lost Personal Allowance: -£5,000
- Additional gross income: +£26,000
- Additional net income after all losses: Only ~£11,000
The effective marginal tax rate exceeds 60% when considering all benefit losses.
FAQs About the 60% Tax Trap
Q: What is the 60% tax trap? A: It's the effective marginal tax rate between £100,000-£125,140 where you lose £1 of Personal Allowance for every £2 earned, creating a 60% rate (40% income tax + 20% from lost allowance).
Q: How can I avoid the 60% tax trap? A: The most effective method is increasing pension contributions to reduce your adjusted net income below £100,000. Salary sacrifice, charitable donations, and Gift Aid also help.
Q: Does the 60% tax trap affect National Insurance? A: No, National Insurance drops to 2% above £50,270, so it doesn't contribute to the trap. However, student loan repayments at 9% make the effective rate even higher (69%).
Q: Should I refuse a pay rise to avoid the 60% tax trap? A: Generally no - you're still better off earning more, just not by as much as you'd expect. Use pension contributions to optimize your position instead.
Q: How does the 60% tax trap work in Scotland? A: Scotland has its own tax rates, and the trap functions similarly but with 42% higher rate tax, creating an effective 62% marginal rate in the £100k-£125k band.