The 60% Tax Trap: the complete UK guide

What "60% tax" actually means

Britain's headline tax rates run 0%, 20%, 40% and 45%. There is no 60% bracket in the official tables. The 60% rate is an emergent consequence of how the Personal Allowance is withdrawn for high earners — a feature that surprises almost everyone the first time they cross £100,000.

For the 2026/27 tax year, the standard Personal Allowance is £12,570. Most taxpayers receive this in full, meaning the first £12,570 of their earnings are tax-free. Above £100,000 of adjusted net income, however, the Personal Allowance is withdrawn at a rate of £1 for every £2 of income above the threshold. By £125,140, the entire allowance is gone.

The double whammy: every additional £1 you earn between £100,000 and £125,140 is taxed at 40% (the higher rate that applies to that band) and withdraws 50p of Personal Allowance, which itself becomes taxable at 40%. Combined effect: 40% + (40% × 50%) = 60%.

Add 2% employee National Insurance on the same income and the effective marginal rate is 62%. For households claiming Tax-Free Childcare or 30 hours of free childcare, where eligibility cuts off at £100,000 of adjusted net income, the cliff edge can effectively cost more than 100% of the next £1 of earnings if they lose the whole childcare benefit at once. We'll come back to that.

Who actually falls into the trap

HMRC estimates around 1.6 million UK taxpayers had income above £100,000 in 2024/25, the most recent year published. That's roughly 5% of all income taxpayers — but those 5% account for around 35% of all income tax revenue, which is why the Personal Allowance taper sits where it does despite its design oddity.

The typical profile is a higher-earning employee, often in London or the South East, often in financial services, professional services, technology or senior public sector roles. The trap also catches:

• Limited-company directors who pay themselves a salary plus dividends and accidentally cross £100,000 of adjusted net income through the dividend route.
• Self-employed professionals (consultants, surgeons, barristers, contractors) whose profits push past the threshold in a strong trading year.
• Two-earner households where both partners earn £55,000-£70,000 each — household income is well over £100k but neither partner triggers the taper individually. The trap is calculated per individual, not per household, so this household actually escapes it. (See "Common misunderstandings" below.)
• Anyone with a one-off bonus, equity vest, share sale or pension lump sum that pushes them into the band for a single tax year.

How "adjusted net income" is calculated

This is the figure HMRC uses to decide whether you trigger the taper, not your gross salary. Adjusted net income (ANI) starts with your total taxable income from all sources, then deducts a small set of reliefs:

• Salary, including bonuses, commission and benefits in kind
• Self-employment profits
• Rental income (after allowable expenses)
• Dividend income
• Savings interest above the Personal Savings Allowance
• Less: grossed-up Gift Aid donations
• Less: grossed-up pension contributions made via "relief at source" (e.g. SIPP, personal pension)

Salary-sacrifice pension contributions don't appear as a deduction because they're already excluded from gross salary on the payslip. ISA contributions don't reduce ANI because ISA money is paid in from already-taxed income.

Use the adjusted net income calculator to see exactly where you sit. The ANI figure is also what triggers the High Income Child Benefit Charge and the £100,000 childcare cliff edge — same number, multiple consequences.

A worked example — £110,000 salary, no pension

The four legal escape levers

Lever 1 — Pension contributions (the workhorse)

The single most powerful lever: every £1 contributed to a pension reduces your ANI by £1. If you contribute via salary sacrifice, the £1 also avoids 2% employee NI and the 13.8% employer NI (which most decent employers will redirect to your pension as additional contribution). For someone in the 60% trap, salary sacrifice into pension produces an effective return of around 75-80% on each sacrificed pound. There is no other legally-available investment in the UK that comes close.

The 2026/27 annual allowance is £60,000, with carry-forward of unused allowance from the previous three tax years available if you've been a member of a registered pension scheme during those years. For very high earners (adjusted income above £260,000), the annual allowance tapers down to a minimum of £10,000.

The salary sacrifice calculator models this directly. The break-even calculation is unambiguous: in the 60% band, sacrificing £10,000 of gross salary into pension costs you ~£3,800 in lost take-home and adds £10,000 (plus any employer NI rebate) to your pension pot.

Lever 2 — Gift Aid donations

Gift Aid donations work similarly to pension contributions for ANI purposes. Each £1 donated is grossed up to £1.25 (because the charity claims back 25% basic-rate tax), and the £1.25 reduces your ANI. The taxpayer also claims higher-rate or additional-rate relief through Self Assessment, paid back via tax code adjustment.

For a higher-rate taxpayer, a £1,000 net Gift Aid donation costs roughly £625 of net take-home (after the rebate) but reduces ANI by £1,250 — recovering £625 of Personal Allowance and £250 of higher-rate tax. The gross-equivalent saving works out around 60-65% of the donation amount in the 60% trap.

This is one of the few cases where a charitable donation is genuinely cheaper for a high earner than for a basic-rate taxpayer. Gift Aid doesn't have a cap; you can donate as much as you like (subject to the rule that your total UK tax paid in the year must cover the basic-rate relief the charity claims).

Lever 3 — Salary sacrifice for non-pension benefits

Less common, but for some employees: the same logic that makes pension salary sacrifice attractive applies to other employer benefit schemes if your employer offers them. The big ones for higher earners:

• Cycle to Work scheme — sacrifice salary in exchange for a bicycle, paid back over 12-18 months.
• Electric vehicle salary sacrifice — sacrifice salary in exchange for an EV lease. The benefit-in-kind on a fully-electric car for 2026/27 is just 3%, and the salary sacrificed avoids income tax + NI. A £600/month EV lease can cost a 60%-trap earner around £200/month net.
• Workplace nursery — if your employer offers a workplace nursery (rare), the costs sacrificed are exempt from tax and NI without limit. Most employers offer Tax-Free Childcare instead, which is not a salary-sacrifice scheme and which itself cuts off at £100,000 ANI.

Lever 4 — Defer or restructure timing-of-income

If your income only crosses £100,000 because of a one-off bonus, equity vest, or other windfall, you may be able to:

• Negotiate timing — receive the bonus in two parts straddling tax years.
• Direct part of the bonus into pension via "bonus sacrifice" — most decent employers offer this at the moment the bonus is calculated.
• Use carry-forward of unused annual allowance from previous years to absorb a large pension contribution that would otherwise breach the £60,000 annual cap.
• Time RSU vests carefully if your employer offers a "vesting election" (uncommon but not unheard of).

These are timing arbitrage moves rather than tax-rate moves; they spread income across multiple tax years to avoid concentrating it in the 60% band of any single year.

The £100,000 childcare cliff — when 60% becomes 100%+

The 60-65k mini-trap: the High Income Child Benefit Charge

Below the 60% trap proper, but worth knowing: the High Income Child Benefit Charge (HICBC) tapers Child Benefit between £60,000 and £80,000 of the higher-earning partner's ANI. It's a separate mechanism from the Personal Allowance taper, but it works in the same direction — and it stacks for households who claim Child Benefit and have an earner in the £60k-£80k band.

For a family with three children claiming Child Benefit (~£3,400/year in 2026/27), the marginal rate on income between £60,000 and £80,000 is roughly 51% (40% income tax + 2% NI + 9% effective HICBC clawback). It's not as ugly as the 60% trap but it shapes the same kind of optimisation logic — pension contributions reduce both ANI and HICBC simultaneously.

Common misunderstandings

• "I should refuse the pay rise that takes me into the trap." Almost never the right move. You always end up with more take-home pay after a pay rise; the marginal rate is just less attractive. The exception is the £100,000 childcare cliff for families using formal childcare — that one can genuinely cost you money on a small pay rise.
• "My household income is over £100k so I'm in the trap." No — the taper is calculated on individual ANI. Two earners on £55k each are nowhere near the trap.
• "Pension contributions are still 'my money', so they don't really save tax." They do. The tax saved is permanent — even when you draw the pension later, 25% comes out tax-free and the remaining 75% is usually taxed at a lower rate than the 60% you saved going in.
• "I should max out my ISA before pension contributions." Wrong order in the 60% trap. ISA contributions don't reduce ANI; pension contributions do. Use pension first to escape the trap, then ISA for further tax shelter.
• "The taper applies to everyone earning over £100k." Yes, but adjusted net income — not gross salary. A £110,000 earner contributing £15,000 (gross) to pension has ANI of £95,000 and is below the taper.

FAQs

Related calculators

The most direct way to see the trap's effect on your own income is the tax calculator, which models ANI and the taper automatically. To plan your way out, the adjusted net income calculator shows exactly which lever moves your ANI by how much, and the salary sacrifice calculator shows what a pension contribution actually costs after the 60% rebate. The bonus and pay-rise calculator is the right tool when a one-off windfall is pushing you into the band.