If your earnings hit £100,000, then that’s usually a cause for celebration. It means your hard work has paid off and you’ve received financial recognition.
You could also feel pleased that your income doesn’t yet come into the 45% additional-rate Income Tax band, which starts at £125,140 in the UK in 2026/27.
However, there is a lesser-known tax rule which could see you paying up to 60% Income Tax on earnings between £100,000 and the additional-rate threshold of £125,140, as your tax-free Personal Allowance begins to taper off.
Read on to find out more about this tax trap and how you could avoid it.
The tax-free Personal Allowance taper comes into force once your earnings reach £100,000
Tax rules can be complex. While you will have a marginal rate of Income Tax – basic, higher, or additional rate – which is applied to your earnings, you also need to factor in your Personal Allowance.
In 2026/27, this is £12,570, which means that you won’t usually pay any tax until your earnings exceed this threshold.
However, when you earn above £100,000 a year, your Personal Allowance begins to taper off and is reduced by £1 for every £2 you earn over this amount.
This means that you’re effectively paying your marginal higher rate of 40%, but are also losing 20% as your Personal Allowance goes down, equating to 60% in total.
For example, if you earn £101,000 then it would look like this:
- £400 from your marginal rate
- £200 lost from your Personal Allowance
- £400 remaining as yours.
When your income reaches £125,140, your Personal Allowance disappears altogether and your whole income is liable for 45% additional-rate tax.
Another element to the 60% tax trap is one which can hit parents hard. As soon as your net income exceeds £100,000, you’ll lose your eligibility for up to 30 hours of free childcare a week and up to £2,000 tax-free childcare a year.
The tax trap is likely to begin widening its net soon, too. According to MoneyWeek, the number of Brits earning six-figure salaries is set to exceed 2 million for the first time in the 2026/27 tax year, pulling tens of thousands more workers into an effective 60% tax rate. This equates to about 6% of the UK’s workforce.
All of this can add up to a pay increase that actually ends up costing you money.
3 effective ways to avoid the tax trap
1. Make additional personal pension contributions
This approach offers a double layer of benefits.
First, your pension contributions will qualify for tax relief. If you’re a basic-rate taxpayer this is automatically applied, while if you’re a higher or additional-rate taxpayer you can claim the tax relief back via your Self Assessment.
Paying into your pension will also reduce your net income, which could take you below £100,000 and restore your Personal Allowance.
For example:
- If you earn £120,000, you’ll need to make a net payment of £16,000 into your pension.
- Your provider will top this up to £20,000.
- You tell HMRC via Self Assessment, and they’ll deduct the £20,000 from your income, taking you back to £100,000.
- HMRC will refund you the 20% tax relief.
As well as helping you avoid the tax trap, this is also a good way to ensure that you’re keeping your pension pot well-funded.
2. Amend your salary
Another way to reduce your net income is via salary sacrifice. This means exchanging part of your salary for certain benefits paid for by your employer, such as extra holidays or childcare.
If you’re self-employed, you can look at alternative ways to draw income, such as taking more through dividends.
Different methods will suit different people, so we’d always recommend talking to us about what will best fit with your own circumstances.
3. Use Gift Aid
Charitable giving is a great way to give to a good cause, and it can also help you climb out of the tax trap.
It works as follows:
- Gift Aid is applied to your charitable donations at 20%.
- With your £101,000, you’d usually pay £600 in tax.
- However, if you give £800 to charity, they’ll top it up to £1,000.
- When you tell this to HMRC via your Self Assessment return, they’ll refund the charity the 20% (£200) and you’ll receive a £40% (£400) refund.
- The charity makes £1,000, and you are only £400 out of pocket, instead of £600.
This will also reduce your net income back down again, taking you below the £100,000 mark.
Get in touch
If you’d like to find out more about how the 60% tax trap could affect you, we’re here to help. Please get in touch by emailing hello@fingerprintfp.co.uk or calling 03452 100 100.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate tax planning.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.