The £100k Tax Trap: Why You Could Pay 60% Tax
By Georgia Holmes
Learn how the Personal Allowance taper works for income over £100,000, why the 60% tax trap occurs, and how pensions and Gift Aid may help reduce adjusted net income.
Earning more than £100,000 might feel like a significant financial milestone. But if your income crosses this threshold, you could face a surprising tax consequence: losing some or all of your tax-free Personal Allowance.
This is often called the 60% tax trap. Between £100,000 and £125,140 of adjusted net income, the Personal Allowance gradually disappears, creating an effective marginal income tax rate of 60% for many taxpayers in England, Wales and Northern Ireland.
The good news is that understanding how the rules work could help you make more informed decisions about your pension contributions, charitable donations and wider financial planning.
So, what happens to your Personal Allowance when you earn over £100,000, and what can you do about it?
What Is the Personal Allowance?
Your Personal Allowance is the amount of income you can usually receive each tax year before paying Income Tax.
For the 2026/27 tax year, the standard Personal Allowance is £12,570. As your adjusted net income rises above £100,000, this allowance is reduced by £1 for every £2 of income above the threshold.
The taper works as follows:
£100,000 income: You retain the full Personal Allowance of £12,570.
£105,000 income: Your Personal Allowance falls to £10,070.
£110,000 income: Your Personal Allowance falls to £7,570.
£115,000 income: Your Personal Allowance falls to £5,070.
£120,000 income: Your Personal Allowance falls to £2,570.
£125,140 or more: Your Personal Allowance is reduced to zero.
These figures assume your adjusted net income matches the amounts shown and that you qualify for the standard Personal Allowance. The key point is that the more your adjusted net income exceeds £100,000, the more of your tax-free allowance you lose.
These figures apply to the standard Personal Allowance for 2026/27. Your adjusted net income, rather than simply your headline salary, determines how much allowance you retain.
Why Is Earning Between £100,000 and £125,140 Called the 60% Tax Trap?
The Personal Allowance taper creates an unusual situation in which you can lose tax relief as your income rises.
For many taxpayers in England, Wales and Northern Ireland, income within this band is otherwise taxed at the 40% higher rate. But every additional £2 of income also removes £1 of Personal Allowance.
That lost allowance means another £1 of income becomes taxable. At a 40% tax rate, losing £1 of allowance costs 40p in additional Income Tax. The combined effect is an effective marginal Income Tax rate of 60%.
In simple terms, for every additional £100 of income within this band, you could pay £60 in Income Tax, leaving £40 before any applicable National Insurance or other deductions.
Imagine you earn £115,000 a year and have no other income or relevant deductions. Your income exceeds the £100,000 threshold by £15,000. Under the taper rules, you lose £7,500 of your Personal Allowance, leaving you with £5,070 rather than £12,570.
Now suppose you make an eligible gross pension contribution of £10,000. Assuming this reduces your adjusted net income by the full amount, your adjusted net income falls to £105,000.…