Believe it or not, there can be a downside to having income of £100,000 or more – an effective 60% tax bill. As an increasing number of people get caught in the 60% tax trap, we outline some simple steps to help you avoid it.
At a glance
- If your total income is between £100,000 and £125,140, the tapering of the personal allowance means you could end up paying an effective 60% income tax rate.
- Almost 725,000 workers will fall into the 60% tax trap in 2025-26, according to HMRC, up from about 300,000 in 2017-2018.1
- Making pension contributions is one of the best ways to avoid the trap and help you enjoy more of your money.
What is the 60% tax trap?
You’re probably familiar with the 20%, 40% and 45% income tax thresholds (the rates are slightly different in Scotland).
However, there is also effectively a 60% band. This is because the tax-free personal allowance tapers off as your income goes up, meaning those with income between £100,000 and £125,140 can end up paying 60% of their income in tax, rather than 40%.
Niki Patel, tax and trusts specialist at Technical Connection, says: “If you’re in a profession that rewards strong performance with good bonuses, a great year ‘on paper’ can have a nasty sting-in-the-tail at tax year-end.”
More people are being caught in the 60% tax trap, due to the freeze on income tax thresholds (in place since 2021), while wages have been steadily rising. The government announced in its 2025 Autumn Budget that the thresholds will stay frozen until at least April 2031.
The result is more people tipping into a higher tax band. According to HMRC estimates, 723,000 people have income between £100,000 and £125,140 in the current tax year, and this is forecast to rise to 850,000 by 2028-29.1
Why the 60% tax trap happens
As a basic-rate taxpayer, you’re entitled to a £12,570 personal allowance, which is the amount of income you can receive each year without paying income tax. But once your income reaches £100,000, the personal allowance slowly reduces.
Niki explains: “Once your income is £100,000 or more, the personal allowance slowly tapers down at a rate of £1 for every £2 of income above £100,000. In real terms, this means that for every £100 of income between £100,000 and £125,140, £40 is deducted in income tax, while another £20 is lost by the tapering of the personal allowance. This results in an effective marginal rate of 60%.
“You will also pay employee National Insurance of 2% on that income.”
Beating the 60% tax trap: top up your pension
One of the simplest ways to avoid the 60% income tax trap is to pay more into your pension. This is a win-win, because you reduce your tax bill and boost your retirement fund at the same time.
Here’s an example. You get a £1,000 bonus, which takes your income to £101,000. If you pay that £1,000 into your pension, you won’t enter the 60% tax zone and you’ll get the benefit of a 40% top-up on your pension contribution, thanks to higher-rate tax relief*.
Bear in mind total pension contributions are limited to the Annual Allowance which is £60,000 as standard (if you earn over £200,000 or are in receipt of certain pensions income your Annual Allowance may be restricted to as little as £10,000).
Personally you can only receive tax relief on contributions up to 100% of your earnings or £3,600 if higher.
“The tax benefits of making pension contributions are limited by the annual pension allowance. It is, however, possible to ‘carry forward’ any unused allowances from the three previous tax years,” notes Niki. So, if you only contributed £20,000 last year, you could potentially top up your pension by an extra £40,000 this year.
Beating the 60% tax trap: give to charity or buy health insurance
Another way to lower your income and avoid the 60% tax trap is to donate to charity. Any Gift Aid donations reduce your adjusted net income, in the same way pension contributions do. Say you get a pay rise and your income increases from £99,000 to £106,000. If you pay £6,000 to charity – or perhaps split the money between a charity donation and a pension contribution – HMRC calculates your income as £100,000, and you avoid the 60% danger zone.
Using salary sacrifice to give up part of your salary in exchange for a non-cash benefit such as childcare vouchers or private medical insurance can also cut your adjusted net income.
You can also use salary sacrifice to contribute to a pension, which means you’ll pay less National Insurance as well as less tax. However, bear in mind that from April 2029, the amount that is exempt from National Insurance contributions will be capped at £2,000 a year.
Beat the 60% tax trap and access childcare perks
If you have children, an added benefit of lowering your income to £100,000 or less is you may now be eligible for tax-free childcare and the 30 hours funded childcare scheme.
With tax-free childcare, you can get up to £2,000 a year for each child to help with the costs of childcare, such as nursery, childminder and after-school clubs. Meanwhile, 30 hours of free childcare a week is offered to families in England with a child aged between nine months and four years.
However, if a parent has an adjusted net income of over £100,000, the family does not qualify for either scheme. So, if your partner earns less than £100,000 and you manage to lower your income below this level too, you should now be able to access these valuable perks.
Navigating our complicated tax system
If there’s one word to describe our tax system, it’s “complicated”. Rules can change frequently and even if you’re more informed than most, it’s easy to misinterpret the rules – and end up in the 60% tax trap without realising.
Speaking to a financial adviser can help you get your finances in order before the end of the tax year, which could result in a smaller tax bill, bigger pension and you feeling more in control of your money.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.
*Any tax relief over the basic rate is claimed via your annual tax return.
Source
1 FOI to HRC by NFU Mutual – 18 June 2025
