The 60% tax trap between £100,000 and £125,140
Why you keep only 38p of each extra pound in this band, and how a pension gets you out.
Between £100,000 and £125,140 you lose £1 of your tax-free allowance for every £2 you earn. That makes the tax on each extra £1 an effective 60%, or 62% with National Insurance. You keep 38p.
How the trap works
Most people get the first £12,570 of their pay tax-free. Once your income goes over £100,000, that allowance starts to shrink: £1 less for every £2 above £100,000. By £125,140 it is gone.
So each extra £2 you earn costs you 40% tax on the £2, plus 40% tax on the £1 of allowance you just lost. That is £1.20 on £2, or 60%. Add 2% National Insurance and you keep 38p of each pound.
| Salary | Take-home a year | You keep from the last £10,000 |
|---|---|---|
| £90,000 | £62,757.40 | - |
| £100,000 | £68,557.40 | £5,800 |
| £110,000 | £72,357.40 | £3,800 |
| £120,000 | £76,157.40 | £3,800 |
| £130,000 | £80,686.40 | £4,529 |
The way out: pay into a pension
The allowance is worked out on your adjusted net income, and pension contributions bring that down. If you earn £110,000 and put £10,000 into your pension through salary sacrifice, you are back at £100,000 and get your full allowance.
Your take-home falls by only £3,800, while the full £10,000 goes into your pension.
Who it catches
Anyone whose income for the tax year lands between £100,000 and £125,140, including people pushed over by a bonus or a pay rise.
Questions
Does a bonus count?
Yes. A bonus is part of your income for the year, so it can push you into the band.
Is it the same in Scotland?
The allowance shrinks the same way, but Scottish rates are different, so the effective rate in the band is higher.
Sources: GOV.UK income tax rates and allowances · GOV.UK National Insurance rates