Am I in the 60% tax trap?
If your income falls between £100,000 and £125,140, you're likely in it. For every £2 earned above £100,000, £1 of the £12,570 personal allowance is withdrawn. Combined with 40% income tax, this creates an effective marginal rate of around 60% on that band of income.
How does the 60% tax trap work?
The personal allowance gives everyone £12,570 of tax-free income. But once earnings exceed £100,000, HMRC begins to taper it away. By £125,140, the entire allowance is gone.
The result is that income between £100,000 and £125,140 is effectively taxed twice: once through normal income tax, and again through the loss of tax-free allowance. That pushes the effective rate to around 60% on that slice of income.
Who does it affect?
This typically hits mid-to-senior professionals, especially those with bonuses, promotions, or pay rises that push income above £100,000. It's often missed because the 60% rate doesn't appear on any payslip or tax code. Many people in this bracket are unaware they're in it.
What do most people do about it?
The most common strategy is pension salary sacrifice. By redirecting part of gross salary into a pension, taxable income is reduced, which helps preserve more of the personal allowance.
This does three things at once:
- Reduces the income tax bill
- Reclaims the personal allowance
- Boosts long-term retirement savings
Most medium and large employers offer a salary sacrifice arrangement. It's worth checking with an employer or HR team what options are available.
If salary sacrifice isn't available, making a personal pension contribution still provides tax relief, though some of it needs to be claimed via self-assessment. For more on how pensions compare with other options, see pension or ISA.
What's the house view?
For anyone earning between £100,000 and £125,140 who isn't already maximising pension contributions, this is one of the most efficient tax planning opportunities available in the UK. It's generally considered a strong starting point before looking at other options.
