';

The £100,000 tax trap: why you pay 60% and how to avoid it

Higher earners

The £100,000 tax trap: why you pay 60% and how to avoid it

Once your income goes over £100,000, you start to lose your personal allowance. Between £100,000 and £125,140, the effective Income Tax rate is 60%, or 62% with National Insurance.

AABy Asim AbbasUpdated 11 November 20263 min read
High earner reviewing the £100,000 tax trap
In 30 seconds
  • Personal allowance falls £1 for every £2 over £100,000
  • Effective tax rate of 60% up to £125,140
  • Parents can lose tax-free childcare and funded hours
  • Pension contributions are the main fix

Parents can also lose tax-free childcare and funded childcare hours at the same point, making the cost even higher.

This guide explains how the trap works and the legitimate ways to escape it.

How the taper works

Your £12,570 personal allowance is reduced by £1 for every £2 of adjusted net income above £100,000. By £125,140, it’s gone completely. The threshold of £100,000 hasn’t changed since 2010, so more people are caught each year.

For example

Ade earns £100,000 and gets a £10,000 pay rise. He pays 40% tax on the £10,000, £4,000. He also loses £5,000 of personal allowance, which costs another £2,000 at 40%. With 2% NI of £200, he keeps only £3,800 of the £10,000, a 62% marginal rate.

The childcare cliff edge

  • Tax-Free Childcare: up to £2,000 a year per child, lost if either parent’s adjusted net income is over £100,000
  • Funded childcare hours: the working parent entitlement in England also stops above £100,000

Unlike the taper, these are lost in full once you go £1 over, so a family with two young children can be thousands of pounds worse off.

Pension tax relief calculator

See how much you save.

Calculate

What is adjusted net income?

Your total taxable income, including salary, bonuses, benefits in kind, self-employed and rental profits, dividends and interest, less gross personal pension contributions, Gift Aid and trading losses.

Ways to get below £100,000

  • Salary sacrifice into a pension: reduces salary directly, with NI savings too
  • Personal pension contributions: claim the extra relief on your tax return
  • Gift Aid donations: gross amount reduces adjusted net income
  • Salary sacrifice benefits: such as an electric car
  • Moving savings into ISAs: removes taxable interest
  • Transferring investments to a spouse: where genuine and outright

Fixed-fee accountancy support

Transparent monthly packages for sole traders, landlords and limited companies. Fixed fees agreed upfront, VAT included.

Get a fixed-fee quoteCall 0161 531 4179
For example

Ade sacrifices the full £10,000 pay rise into his pension. His income stays at £100,000, he keeps his personal allowance and his family keeps Tax-Free Childcare of £4,000 a year for two children. The pension grows by £10,000, plus any employer NI saving his employer passes on.

Bonuses and timing

A bonus can push you over £100,000 for one year. Ask whether it can be sacrificed into your pension before it’s paid. Directors can control timing of dividends and employer pension contributions.

Watch the annual allowance

Pension contributions are limited by the £60,000 annual allowance, including employer contributions. Carry forward of unused allowance from three previous years may help with large one-off contributions. Very high earners have a tapered allowance.

See HMRC’s guidance on the allowance for income over £100,000, our pension relief guide and our high earner tax returns service.

What should I do next?

Work out adjusted net income

Include bonuses and dividends.

Check childcare support

Tax-Free Childcare and hours.

Plan pension contributions

Before the year end.

Get a high earner review

Our high earner service.

Frequently Asked Questions

What is the 60% tax trap?

Between £100,000 and £125,140, losing the personal allowance creates an effective 60% Income Tax rate.

When do I lose my personal allowance completely?

At £125,140 of adjusted net income in 2026/27.

Do I lose Tax-Free Childcare over £100,000?

Yes, if either parent’s adjusted net income is over £100,000.

How can I avoid the £100,000 trap?

Pension contributions, salary sacrifice and Gift Aid reduce adjusted net income.

Does a bonus count?

Yes. Bonuses count in full unless sacrificed before payment.

Need help with this? Wingate Accountants offers fixed-fee online accountancy support across the UK. Call 0161 531 4179 or request a quote at wingateaccountants.co.uk.

AA

About the Author

Asim Abbas
I’m Asim Abbas, founder of Wingate Accountants and a Chartered Certified Accountant. I help sole traders, landlords and directors stay on top of their tax with fixed fees and plain-English advice.

★★★★★ Client reviewsWhat our clients say

Software we work with

Our partners

We work with the UK’s leading accounting and tax software, so you can keep the tools you know, or we can help you choose and move to the right one.

  • FreeAgent logo
  • Xero logo
  • Pandle logo
  • QuickBooks logo
  • Sage logo
  • TaxCalc logo
  • CloudConnect logo
  • Zoho logo
Making Tax Digital readyCloud bookkeeping set up for youHelp switching software

Wingate Accountants Ltd is an independent firm of Chartered Certified Accountants, providing tax and compliance services to individuals and businesses across the UK.

✔ HMRC Registered Tax Agent
✔ Companies House ACSP (Authorised Corporate Service Provider)
✔ Data Protection registration No. ZB868558
✔ Fully AML compliant

Find us on: Trustpilot · Yell · Thomson Local · Cylex · ProvenExpert · Facebook · Companies House

Contact Us

Hours

Monday to Friday : 09:00 – 17:00 Saturday & Sunday : Closed

Copyright © 2026 Wingate Accountants Ltd · Chartered Certified Accountants · Registered in England & Wales No. 15494836 · All rights reserved.