Why It Happens
Everyone gets a tax-free Personal Allowance of £12,570. But for every £2 you earn over £100,000, you lose £1 of that allowance.
The result:
- You pay 40% tax on each extra pound earned.
- You also lose 50p of tax-free allowance per £1 earned, which is then taxed at 40%.
- Extra effective tax from the taper: 50p x 40% = 20% extra.
- Total effective rate: 60%.
By the time your income reaches £125,140, your entire Personal Allowance is gone. Above that, the marginal rate drops back to the standard 45% Additional Rate.
What You Actually Keep
This table shows how the trap eats into take-home pay at different salary levels (Income Tax only, standard code):
| Salary | Personal Allowance | Income Tax | Tax on Last £10k | Marginal Rate |
|---|---|---|---|---|
| £90,000 | £12,570 | £23,432 | £4,000 | 40% |
| £100,000 | £12,570 | £27,432 | £4,000 | 40% |
| £110,000 | £7,570 | £33,432 | £6,000 | 60% |
| £120,000 | £2,570 | £39,432 | £6,000 | 60% |
| £125,140 | £0 | £42,514 | £3,082 | 60% |
| £150,000 | £0 | £53,703 | £4,500 | 45% |
The red zone is the trap: £6,000 tax on every £10,000 earned. Above £125,140 the rate drops to 45%.
The Pension Escape: Worked Example
You earn £110,000. The £10,000 above £100k is taxed at 60%, costing you £6,000 in extra tax. You keep just £4,000 of it.
You put that £10,000 into your pension via salary sacrifice.
- Your Adjusted Net Income drops to £100,000
- Your full Personal Allowance (£12,570) is restored
- You save £6,000 in Income Tax + £200 in NI = £6,200 total
- The pension contribution only cost you £3,800 in reduced take-home
Result: £10,000 in your pension pot for a real cost of £3,800. That's 62% effective tax relief.
Other Ways to Reduce Your ANI
Pension contributions are the most common route, but anything that reduces your Adjusted Net Income works:
- Gift Aid donations — the grossed-up amount (donation x 1.25) reduces ANI. A £1,000 donation reduces ANI by £1,250.
- Trading losses — if you have a side business that made a loss, you can set it against your employment income.
- Relief at source pension — personal pension contributions also reduce ANI (the gross amount, not the net payment).
Scottish Taxpayers: Even Higher Effective Rate
In Scotland, the Higher Rate is 42% (not 40%). Combined with the taper, the effective marginal rate is 63% in the trap zone. The same pension strategy works, but the savings are even bigger: 63p in every £1 sacrificed into a pension.
Check Your Numbers
See exactly how much tax you're losing to this trap and how much a pension contribution would save you.
Common Questions
What is the 60% tax trap?
For every £2 you earn over £100,000, you lose £1 of your tax-free Personal Allowance (£12,570). This means income between £100,000 and £125,140 is effectively taxed at 60% — 40% Income Tax on the income itself, plus 40% on the allowance you lose (which works out to an extra 20%). Your Personal Allowance is completely gone at £125,140.
How do I escape the 60% tax trap?
The main strategy is to reduce your Adjusted Net Income below £100,000 using pension contributions (salary sacrifice or personal pension), Gift Aid donations, or trading losses. Pension contributions are the most common route because you get 60% effective tax relief on the amount that brings your ANI back under £100,000.
Does the 60% trap apply in Scotland?
Yes. Scottish taxpayers face the same Personal Allowance taper. The effective marginal rate in Scotland is actually higher — around 63% — because the Scottish Higher Rate is 42% (vs 40% for the rest of the UK), and the taper adds an extra 21% on top.
Is it worth earning over £100,000?
Yes, but the trap zone between £100,000 and £125,140 is punishing. For every extra £1,000 earned in this range, you keep only about £400. Above £125,140 (where the Personal Allowance is fully withdrawn), the marginal rate drops back to 45% and you keep £550 per extra £1,000. The key is to either stay under £100k or push well past £125,140.