The 60% tax trap, explained
The highest income tax rate in the UK is officially 45%. But if you earn between £100,000 and £125,140, each extra pound you earn can cost you 60p in tax, or 62p once National Insurance is added.
Why it happens
Everyone starts with a £12,570 tax-free Personal Allowance. Once your adjusted net income goes over £100,000, you lose £1 of that allowance for every £2 you earn above the limit. By £125,140, it's gone completely.
So for every extra £100 you earn in that range:
- you pay £40 of higher-rate tax on the £100 itself
- you lose £50 of allowance, which is now taxed at 40%, costing another £20
- you pay £2 of National Insurance
That's £62 out of every £100. If you're repaying a Plan 2 student loan, another £9 goes, leaving you just £29. In Scotland the advanced rate of 45% makes the effective rate 67.5%, or 69.5% with NI.
A worked example
On a salary of £110,000 in 2026/27, with no pension contributions:
| Personal Allowance | £7,570 (reduced by £5,000) |
| Income tax | £33,432.00 |
| National Insurance | £4,210.60 |
| Take-home pay | £72,357.40 |
It's not just tax
Going over £100,000 of adjusted net income has other costs, especially for parents. In England you lose Tax-Free Childcare, which is worth up to £2,000 a year per child, and the funded childcare hours for working parents. That can be worth thousands of pounds a year, all lost at once.
How to get out of the trap
Adjusted net income is your total taxable income minus certain deductions. The most useful of these are pension contributions and Gift Aid donations.
Pay more into your pension
Using the same £110,000 salary, suppose you put an extra £10,000 a year into your pension through salary sacrifice:
| No extra pension | £10,000 salary sacrifice | |
|---|---|---|
| Income tax | £33,432.00 | £27,432.00 |
| National Insurance | £4,210.60 | £4,010.60 |
| Take-home pay | £72,357.40 | £68,557.40 |
| Into your pension | £0 | £10,000.00 |
Your take-home pay falls by only £3,800, but £10,000 goes into your pension. Each pound saved costs you 38p, and you get your full Personal Allowance back.
- Salary sacrifice or net pay pensions reduce your income automatically through payroll.
- Relief at source or personal pensions (SIPPs): you need to claim the extra relief through a Self Assessment tax return, or by asking HMRC to change your tax code. Your adjusted net income is reduced by the gross contribution.
- Check your annual allowance first. Most people can pay up to £60,000 a year into pensions with tax relief, including employer contributions.
Give to charity with Gift Aid
Gift Aid donations reduce adjusted net income by the grossed-up amount, so donating £800 counts as £1,000. Higher earners claim the extra relief through Self Assessment.
Pension money is usually locked away until at least age 57 (from 2028). Make sure you can afford the lower take-home pay before increasing your contributions.
Try different pension amounts on a £110,000 salary.
Open this example