The UK's 60% effective tax rate on earnings between £100,000 and £125,140 is one of the most poorly understood features of the tax system. Here is exactly how it works and what to do about it.
There is a band of income in the UK where every additional pound you earn is effectively taxed at 60 pence. Not for millionaires. For people earning between £100,000 and £125,140, a group that includes senior professionals, experienced doctors, partners at regional law firms, and many senior public sector managers. This is not a widely publicised policy. It is an accidental consequence of the interaction between income tax rates and the Personal Allowance taper, and it creates some of the most perverse incentives in the entire UK tax system.
To understand the trap, you first need to understand the Personal Allowance. Every UK taxpayer has a tax free Personal Allowance, in 2026/27, this is £12,570. You pay no income tax on the first £12,570 of income.
Above £100,000, the government begins withdrawing this allowance at a rate of £1 of allowance for every £2 of additional income. By the time you reach £125,140, the Personal Allowance has been completely withdrawn.
Here is why this creates a 60% effective rate:
| Gross salary | Personal Allowance remaining | Effective marginal rate on next £1 | Approximate take home |
|---|---|---|---|
| £99,999 | £12,570 (full) | 40% | ~£67,400 |
| £100,000 | £12,570 (full) | 60% (taper begins) | ~£67,400 |
| £110,000 | £7,570 | 60% | ~£70,900 |
| £120,000 | £2,570 | 60% | ~£74,200 |
| £125,140 | £0 (fully withdrawn) | 45% (additional rate) | ~£76,000 |
| £150,000 | £0 | 45% | ~£85,400 |
Notice something counterintuitive in the table above: a person earning £125,140 is taxed at a lower marginal rate than someone earning £100,001. A millionaire earning above the additional rate threshold pays 45p in the pound on their top income. Someone earning £105,000 pays 60p in the pound. The UK tax system, for this group, is actively regressive within the £100,000 to £125,140 band.
More people than you might think. The earnings band £100,000 to £125,140 catches:
HMRC data shows that the number of taxpayers with income above £100,000 has grown substantially as salary inflation has pushed more professionals into this band over time. The threshold has not been indexed to inflation, meaning it captures a growing proportion of senior professionals each year.
For parents, the trap has an additional dimension. Child Benefit begins being clawed back through the High Income Child Benefit Charge (HICBC) when adjusted net income exceeds £60,000, and is fully withdrawn at £80,000. But for parents in the £100,000 to £125,140 band, the interaction is more complicated. The HICBC threshold is based on adjusted net income, not gross salary, meaning pension contributions reduce it. A parent earning £105,000 who contributes £10,000 to a pension reduces their adjusted net income to £95,000, potentially restoring Child Benefit eligibility while also avoiding the 60% trap.
The mechanism that neutralises the 60% trap is pension contributions, and this is not a loophole, it is exactly what the government intends. The pension system is designed to incentivise long term saving, and the tax relief at higher rates is part of that design.
Here is how it works for someone earning £110,000:
| Without pension contribution | With £10,000 pension contribution | |
|---|---|---|
| Gross salary | £110,000 | £110,000 |
| Adjusted net income | £110,000 | £100,000 |
| Personal Allowance | £7,570 (partially withdrawn) | £12,570 (fully restored) |
| Tax saved on £10,000 contribution | Not applicable | ~£6,000 (60p in the pound) |
| Effective cost of £10,000 pension contribution | Not applicable | ~£4,000 net |
At 60% effective relief, a £10,000 pension contribution costs you only £4,000 in reduced take home pay. No ISA, property investment, or other savings vehicle comes close to this return. For anyone caught in the trap, maximising pension contributions to bring adjusted net income to £100,000 or below is the single most financially efficient action available.
If your employer offers a salary sacrifice pension arrangement (where pension contributions are made before income tax and National Insurance are calculated), the saving is even greater. At £100,000 to £125,140 income levels, the NI rate on earnings above £50,270 is 2%. Salary sacrifice contributions also save this 2% NI, making the effective total relief on salary sacrifice contributions approximately 62%.
The annual pension contribution allowance in 2026/27 is £60,000 (or 100% of earnings, whichever is lower). Most people in the £100,000 to £125,140 band have significant capacity to contribute. However, if you have already used your full annual allowance, or have a Money Purchase Annual Allowance restriction, the options are more limited:
There is a strong policy argument that the Personal Allowance taper creates irrational incentives and should be abolished, either by removing the taper entirely (making the allowance available to all regardless of income) or by replacing it with an explicit additional rate that is transparent rather than embedded in the allowance calculation. Multiple independent tax reviews have recommended reform. The Institute for Fiscal Studies has noted that the 60% band is an anomaly that distorts behaviour in ways that are economically inefficient.
The reason successive governments have maintained it is straightforward: it raises significant revenue and predominantly affects high earners, making it politically unattractive to change. The fiscal cost of restoring the Personal Allowance to all those above £100,000 is substantial, and the political cost of being seen to give a tax cut to high earners is equally substantial in the current environment.
Our take home pay calculator shows you the impact of the Personal Allowance taper and helps you model the effect of pension contributions on your net income.
Calculate Take Home Pay →Between £100,000 and £125,140, the Personal Allowance is withdrawn at £1 for every £2 of extra income. Combined with the 40% higher rate of income tax, this creates an effective marginal tax rate of 60% on income in this band.
Pension contributions are the most effective solution. Every £1 contributed to a pension reduces your adjusted net income by £1, restoring Personal Allowance and saving 60p in the pound within the trap band. Contributing enough to bring adjusted net income to £100,000 eliminates the trap entirely.
Yes, it is an intentional (if poorly understood) feature of the UK tax system. The Personal Allowance taper was introduced in 2010 and has remained in place since. It is not a loophole or error; it is how the system is designed.
Anyone with adjusted net income between £100,000 and £125,140. This includes many senior NHS clinicians, GP partners, senior solicitors, finance directors, experienced chartered accountants, and senior civil servants.
Above £125,140, the Personal Allowance has been fully withdrawn. The marginal income tax rate drops back to the additional rate of 45%, lower than the 60% within the trap band. The UK tax system is therefore regressive within this specific income range.