The £100k tax trap is the income band between £100,000 and £125,140 where you pay an effective Income Tax rate of 60%. It happens because you lose part of your tax-free Personal Allowance as your income rises above £100,000.
Many people fall into this trap through a pay rise, a bonus or a strong year in their business. The good news is that you can often avoid it with careful planning, especially through pension contributions.
This guide explains how the £100k tax trap works, who it affects and the practical ways to reduce it.
How Does the £100k Tax Trap Work?
Most people get a tax-free Personal Allowance of £12,570. Once your adjusted net income goes over £100,000, you lose £1 of allowance for every £2 you earn above that level.
By the time your income reaches £125,140, your Personal Allowance is gone completely.
So every extra £100 you earn in this band costs you:
- £40 in higher-rate tax on the £100 itself
- £20 in extra tax, because £50 of your allowance is now taxed at 40%
That is £60 of tax on every £100, an effective rate of 60%.
Effective Tax Rates by Income Band (2026/27)
| Income band | Income Tax rate | Effective rate |
|---|---|---|
| £12,571 to £50,270 | 20% | 20% |
| £50,271 to £100,000 | 40% | 40% |
| £100,001 to £125,140 | 40% + lost allowance | 60% |
| Over £125,140 | 45% | 45% |
These rates apply in England, Wales and Northern Ireland. Scotland has different tax bands, but the Personal Allowance taper works the same way.
Employees also pay 2% National Insurance on earnings in this band, so their marginal rate is actually 62%. Self-employed people pay 2% Class 4 National Insurance, with the same result.
A Worked Example
Sarah earns a salary of £110,000.
- Her income is £10,000 over the £100,000 limit.
- She loses half of that, so her Personal Allowance falls by £5,000, from £12,570 to £7,570.
- She pays 40% on the extra £10,000 of income: £4,000.
- She also pays 40% on the £5,000 of lost allowance: £2,000.
Sarah pays £6,000 of extra Income Tax on her last £10,000 of income. That is 60%.
Once income passes £125,140, the allowance is fully gone. HMRC then often issues a 0T tax code, because there is no tax-free amount left to give.
The Childcare Cliff Edge
The £100k tax trap can cost families even more. If either parent has adjusted net income over £100,000, the family loses:
- Tax-Free Childcare, worth up to £2,000 per child each year (£4,000 for a disabled child)
- Funded childcare hours in England, which can be worth thousands of pounds a year
Unlike the Personal Allowance, these benefits do not taper away. Going just £1 over £100,000 can mean losing them completely. For some parents, a small pay rise can leave them worse off overall.
What Is Adjusted Net Income?
The trap is based on your adjusted net income, not just your salary. It includes:
- Employment income, including bonuses and taxable benefits
- Self-employed profits
- Rental profits
- Dividends and savings interest
You then deduct certain items, such as gross personal pension contributions and Gift Aid donations. This is why pensions and charity giving are so effective at reducing the trap.
How to Avoid the £100k Tax Trap
1. Pay More Into Your Pension
This is the most effective option for most people. Pension contributions reduce your adjusted net income, which can restore your Personal Allowance.
Using Sarah’s example, a gross pension contribution of £10,000 brings her adjusted net income back to £100,000. She gets her full Personal Allowance back.
The £10,000 contribution only costs Sarah about £4,000 in real terms, because she gets around £6,000 in tax relief. The money also stays in her pension for the future.
If you pay into a personal pension, you must claim the extra relief through your Self Assessment tax return. It is not added automatically.
2. Use Salary Sacrifice
If your employer offers salary sacrifice, you give up part of your salary in exchange for an employer pension contribution. This reduces your taxable pay directly and can also save National Insurance.
3. Donate Through Gift Aid
Gift Aid donations also reduce your adjusted net income. A donation of £8,000 counts as £10,000 gross, which has the same effect as the pension example above. This works well if you already give to charity.
4. Plan Your Income as a Company Director
If you run a limited company, you have more control over when you take income. You can:
- Adjust the mix of salary and dividends
- Spread dividends across tax years
- Make employer pension contributions directly from the company
Our guide to salary vs dividends explains the options in more detail.
5. Share Income With a Spouse
If you own investments or a business jointly with a spouse or civil partner, sharing income can keep both of you below £100,000. This needs careful planning to make sure the arrangement is genuine.
Why More People Are Falling Into the Trap
The £100,000 limit has not changed since it was introduced in 2010. Income Tax thresholds also remain frozen. As wages rise, more people cross £100,000 each year without any real increase in their spending power.
With the Autumn Budget on 28 October, it is worth reviewing your position now. Read our guide on whether you should act before the Autumn Budget.
You can find HMRC’s official rules on Income Tax for income over £100,000 on GOV.UK.
Frequently Asked Questions
What is the 60% tax trap?
It is the effective tax rate on income between £100,000 and £125,140. You pay 40% tax and also lose part of your Personal Allowance, which adds another 20%.
Is the £100k tax trap based on salary only?
No. It is based on adjusted net income, which includes salary, bonuses, self-employed profits, rental income, dividends and savings interest.
Can a bonus push me into the £100k tax trap?
Yes. A bonus counts as income in the tax year you receive it. Many employers let you sacrifice part of a bonus into your pension, which can keep you below £100,000.
Does the £100k tax trap apply in Scotland?
Yes. Scotland has different tax bands, but the Personal Allowance taper above £100,000 works in the same way.
Do I need to file a tax return if I earn over £100,000?
Not always. However, you usually need to file one to claim higher-rate relief on personal pension contributions or Gift Aid, or if you have income outside PAYE.
Get Help With Higher-Rate Tax Planning
The £100k tax trap is one of the most expensive parts of the UK tax system, but with the right planning, much of the cost can be avoided. Our ACCA-regulated team reviews your income, pension and family position, then builds a plan that keeps more of your money working for you.
Find out more about our tax planning for high earners, or call 020 3633 2018 to speak to our accountants in Slough.