The 60% Tax Trap, Explained

If your UK salary sits between £100,000 and £125,140, you are almost certainly paying an effective marginal rate of 60%, not the 40% shown on your payslip. Here is exactly why — and the single move that makes it go away.

By Mike Turzynski · 6 min read · Tax year 2026/27 · Updated May 2026

The short version

Everyone in the UK gets a Personal Allowance of £12,570 — the slice of your earnings the taxman ignores entirely. Once your annual income crosses £100,000, that allowance starts to shrink: for every £2 you earn above £100,000, you lose £1 of your allowance. By £125,140 it has disappeared completely.

Losing tax-free income is the same as paying extra tax on the money that triggered the loss. Combine that with the 40% Higher Rate band you're already in, and the maths works out to a 60% effective rate on every pound between £100,000 and £125,140.

For every £100 of extra salary earned in this band, HMRC takes £60. Your bank balance only grows by £40. A pay rise from £105k to £110k delivers less take-home than the same £5k rise at £80k would.

Why this happens — the maths in plain English

Imagine you've just been offered a £100 pay rise that pushes your salary from £110,000 to £110,100. Two things happen simultaneously:

You pay 40% Higher Rate tax on that £100. That's £40 gone immediately.
That same £100 triggers a £50 reduction in your Personal Allowance. That £50 you used to receive tax-free is now taxed at 40%, which is another £20.

Total tax bill on the £100 rise: £40 + £20 = £60. You keep £40. That is the 60% trap.

A worked example

Compare two employees: Alex earns £100,000, and Sam earns £125,140. Both live in England, on code 1257L, making no pension contributions.

	Alex (£100,000)	Sam (£125,140)	Difference
Gross salary	£100,000	£125,140	+£25,140
Personal Allowance	£12,570	£0	−£12,570
Income Tax	£27,432	£42,516	+£15,084
National Insurance	£3,991	£4,494	+£503
Net take-home	£68,577	£78,130	+£9,553

Sam earned £25,140 more on paper but only kept £9,553. The effective tax rate on the extra income is just over 62% once National Insurance is included.

How to neutralise it: salary sacrifice pension

The trap has a clean fix that most large UK employers already support: salary sacrifice into a pension.

The trick is that the £100,000 threshold uses your adjusted net income, not your contractual salary. Pension contributions made via salary sacrifice reduce your adjusted net income pound for pound. So if you're on £125,140 and sacrifice £25,140 into your pension, your adjusted net income drops to £100,000 and your full Personal Allowance is restored.

The headline result: A £25,140 pension contribution costs only around £10,000 in take-home pay, because you save £15,000 in reclaimed tax and Personal Allowance. Effective tax relief: approximately 60%. No other commonly-available tax wrapper gets close to this.

The catches

Annual Allowance: Total pension contributions are capped at £60,000 a year for most people. Above £260,000 of income, this tapers down to as little as £10,000.
Money is locked away: Pension funds cannot be accessed until age 55 (rising to 57 from 2028). Brilliant tax planning, not an emergency fund.
Employer NI saving: Salary sacrifice saves your employer National Insurance too. Many employers pass some or all of this saving back into your pension — always ask.
Mortgage affordability: Sacrificing aggressively can lower the salary figure lenders use. If you're buying soon, time the contribution carefully.

Other cliff edges in the same band

Tax-Free Childcare (30 free hours and the £500/quarter top-up) cuts off completely once either parent earns over £100,000 of adjusted net income. A pension sacrifice can preserve both.
Marriage Allowance is unavailable once the higher earner is in the Higher Rate band — so it's already gone before the trap begins.

What this means when negotiating a pay rise

If your employer offers a raise from £100,000 to £110,000, that £10,000 extra translates to only £4,000 in your bank account. Two strong negotiation moves:

Ask for the rise to be split: e.g. £5,000 salary plus £5,000 employer pension contribution. The pension half avoids the trap entirely and costs your employer the same.
Ask whether the firm offers salary sacrifice and whether they share the employer NI saving. A simple question that could be worth thousands annually.

Run my own numbers in the calculator ›

General information about UK tax rules for the 2026/27 tax year, not personal financial advice. For complex situations — share schemes, multiple income sources, or company directorship — please consult a qualified accountant or independent financial adviser.