What is the 60% tax trap?

The mechanic — Personal Allowance taper

The 60% tax trap is the marginal rate band that hits earnings between £100,000 and £125,140 in 2026/27. It is not a separate tax band in the rate tables — it is the result of how the Personal Allowance is withdrawn. Above £100,000, the Personal Allowance reduces by £1 for every £2 of adjusted net income above the threshold. By £125,140, the allowance is gone entirely.

The double whammy: each extra £1 of income is taxed at 40% (the higher rate), and it withdraws 50p of Personal Allowance, which itself becomes taxable at 40%. Combined effect: 40% + (40% × 50%) = 60%. Plus 2% employee National Insurance, you reach 62% effective marginal rate on each pound earned in the £100,000 to £125,140 band.

Why it is one of the worst-designed pieces of the UK tax code

Almost no taxpayer expects a marginal rate higher than the headline "additional rate" of 45%. The 60% (or 62%) band appears as an emergent consequence of the Personal Allowance taper rather than as a deliberate rate, which means it surprises most people the first time they cross £100,000 — typically when they expect a pay rise to feel meaningful. A £10,000 raise from £95,000 to £105,000 produces only about £3,800 of additional take-home, instead of the £5,800 most people would estimate for a 40% taxpayer.

The trap also creates strange cliff-edge planning behaviour. Taxpayers around the threshold will refuse bonuses, defer pay, push more into pensions, or use salary sacrifice to bring adjusted net income back below £100,000 — moves that would be irrational at any other point on the income curve.

Pension contributions are the standard escape

The cleanest way to avoid the 60% band is a pension contribution that brings your adjusted net income back to £100,000. Each £1 contributed via salary sacrifice or relief-at-source pension reduces your adjusted net income by £1, restoring £0.50 of Personal Allowance for every £2 saved. The marginal saving on the contribution is therefore the same 60% — making pension contributions in this band the best-value relief available in the UK system.

Salary sacrifice is even more efficient because it also avoids the 2% employee National Insurance and the 15% employer NI (which most employers will pass on as additional pension contribution). For a £5,000 sacrifice in this band, the gross-equivalent saving for the household can exceed 75%.

Charity donations also rescue the marginal rate

Gift Aid donations work in a similar way: the donation is added to your basic-rate band, and the gross-equivalent amount reduces your adjusted net income for Personal Allowance taper purposes. A £1,000 net donation grosses up to £1,250 and reduces ANI by that £1,250 — recovering £625 of Personal Allowance.

Related on this site

Use the adjusted net income calculator to see exactly where you sit on the taper, the salary sacrifice calculator to model the rescue, and the in-depth 60% trap tip for the strategy summary. The bonus and pay rise calculator helps if you are considering whether to accept a bonus that pushes you into the trap.

Why it is called 60%

In that income range, each extra £2 of income can cost you £1 of Personal Allowance. The result is that part of the income is taxed at 40% and you also lose some tax-free allowance, which creates an effective 60% band for many employees.

Why it matters

• It can make the next pay rise feel much smaller than expected.
• Pension contributions and Gift Aid can sometimes push ANI back below the taper line.
• Families can also face Child Benefit drag at the same time, which makes the marginal effect even worse.

Best next pages

Use Adjusted Net Income Calculator, then Bonus / Pay Rise Calculator or Salary Sacrifice Calculator to see the effect in your own numbers.

Worked example: a £5,000 bonus at £105,000

Imagine you already earn £105,000 and your employer offers a £5,000 bonus, taking your adjusted net income to £110,000. Every pound of that bonus falls squarely inside the £100,000–£125,140 taper, so it is taxed at the 60% effective rate (62% once the 2% employee National Insurance on earnings above the upper threshold is added).

• Income Tax at 40%: £5,000 × 40% = £2,000.
• Tax on lost Personal Allowance: the £5,000 withdraws £2,500 of Personal Allowance (£1 for every £2). That £2,500 is now taxed at 40%, costing a further £1,000.
• Employee National Insurance at 2%: £5,000 × 2% = £100.

Total deductions: £2,000 + £1,000 + £100 = £3,100. You keep just £1,900 of a £5,000 bonus — an effective tax rate of 62%. Most people expect a 40%-or-so deduction and are startled to lose almost two-thirds. If instead you sacrificed the entire £5,000 into your pension, the full £5,000 (plus any employer National Insurance saving they choose to add) lands in your pension while your take-home pay is barely touched, because you never crossed into the taxable band in the first place.

How it stacks with student loans and Child Benefit

The 60% band is the headline figure, but it rarely travels alone. Several other deductions are also driven by income in the same range, and they stack on top of the taper:

• Postgraduate loan (Plan 3): repaid at 6% of income above the threshold. Added to the 62% band, your marginal rate climbs to roughly 68%.
• Undergraduate student loan (Plan 2 or Plan 5): repaid at 9% above the threshold. Combined with the taper and NI, the marginal rate can reach about 71%.
• High Income Child Benefit Charge (HICBC): although the main HICBC band now runs from £60,000 to £80,000, a parent who is also repaying a student loan and sitting in the taper can experience several overlapping clawbacks across their income. Where bands coincide, marginal rates above 70% are entirely possible.

The practical lesson is that the “60%” label understates the problem for many real households. Anyone with a student loan, children, or both should model their actual combined marginal rate rather than assuming a single headline percentage — and the case for redirecting income into a pension becomes even stronger as those layers compound.

The £125,140 cliff and the additional rate

At £125,140 the Personal Allowance has been fully withdrawn, so the 60% taper effect stops — but this is also the exact point at which the 45% additional rate begins. The threshold was deliberately set at £125,140 because that is the income at which a taxpayer earning above £100,000 has lost the entire £12,570 Personal Allowance (£12,570 × 2 = £25,140, added to £100,000).

So the journey looks like this: from £100,000 to £125,140 you face the 60% (or 62%) taper; from £125,140 upwards you pay the flat 45% additional rate (47% with National Insurance) on further earnings. Counter-intuitively, the marginal rate falls once you pass £125,140, because the allowance can only be lost once. This is why the £100,000–£125,140 band, not the very top of the income scale, is the single most punishing stretch of the UK income tax system — and why pension contributions, salary sacrifice and Gift Aid are most valuable precisely within it.