The 60 percent tax trap explained

What the 60 percent tax trap actually is

The 60 percent tax trap is not a formal tax band. It is a practical effect that happens when the personal allowance starts to taper away for income above GBP 100,000.

Here is how it works: in the current ruleset, the personal allowance is GBP 12,570. For every GBP 2 of adjusted net income above GBP 100,000, GBP 1 of personal allowance is removed. That means the full personal allowance disappears entirely once adjusted income reaches GBP 125,140.

The practical consequence is that each additional pound earned in this range is effectively taxed at around 60 percent rather than the expected 40 percent. The extra 20 percent comes from the loss of personal allowance, which exposes income that was previously tax-free to the basic rate of tax.

Practical takeaway: between GBP 100,000 and GBP 125,140, the government does not charge a 60 percent tax rate. But the combined effect of the 40 percent higher rate and the personal allowance taper creates the same practical outcome.

Why it matters so much for real decisions

This is not an academic curiosity. It changes how real pay decisions play out:

• a raise from GBP 100,000 to GBP 110,000 delivers far less extra take-home than a raise from GBP 90,000 to GBP 100,000
• a bonus paid on top of a GBP 100,000 base salary retains far less than the same bonus on a GBP 80,000 salary
• salary sacrifice into a pension can be dramatically more efficient in this band than at any other income level
• some people genuinely end up with less spendable income after a modest raise because of how pension tapering and childcare benefits interact with the personal allowance taper

If you earn near or above GBP 100,000 and do not model the taper, you are making decisions with incomplete information.

The maths in practical terms

The standard higher-rate position

At incomes between GBP 50,270 and GBP 100,000, the marginal tax rate is 40 percent income tax plus 2 percent employee National Insurance. That means you keep roughly 58p of each additional pound earned.

Inside the taper zone

Between GBP 100,000 and GBP 125,140, the marginal rate jumps:

• 40 percent income tax on the additional pound
• plus an effective extra 20 percent because GBP 0.50 of personal allowance is removed per GBP 1 of income, and that GBP 0.50 becomes taxable at the basic rate of 20 percent (0.50 multiplied by 40 percent equals 20 percent)
• plus 2 percent employee National Insurance

That creates an effective marginal rate of approximately 62 percent in the taper zone. You keep roughly 38p of each additional pound.

After the taper

Once income passes GBP 125,140 and the personal allowance is fully removed, the marginal rate drops back to the standard 42 percent until the additional-rate threshold. This creates the counterintuitive result that someone earning GBP 130,000 keeps more of their marginal pound than someone earning GBP 110,000.

How frozen thresholds make this worse

The personal allowance and the GBP 100,000 taper threshold have been frozen since 2021-22 and are expected to remain frozen through 2027-28 at least. This means fiscal drag is pulling more people into the taper zone each year as wages rise with inflation.

A salary that was safely below GBP 100,000 a few years ago may now be in or approaching the taper zone after a series of inflation-linked pay rises. This is why the 60 percent trap is becoming relevant to more people every tax year.

How salary sacrifice changes the picture

Salary sacrifice is the single most powerful tool for managing the personal allowance taper. When pension contributions are made through salary sacrifice, they reduce adjusted net income before the taper calculation.

Example scenario

Suppose adjusted income is GBP 112,000. In the current model:

• without salary sacrifice, the personal allowance is reduced by GBP 6,000 (half of the GBP 12,000 above GBP 100,000), leaving only GBP 6,570 of personal allowance
• with GBP 12,000 of salary sacrifice to pension, adjusted income drops to GBP 100,000, which preserves the full GBP 12,570 personal allowance

The take-home cost of that GBP 12,000 pension contribution is far less than GBP 12,000 because it saves tax at the effective 60 percent marginal rate plus National Insurance.

This is why salary sacrifice at this income level is not just a nice-to-have pension boost. It can be one of the most tax-efficient decisions a UK taxpayer can make.

Bonus treatment in the taper zone

A bonus paid on top of a salary that is already at or above GBP 100,000 falls into the taper zone. That means the effective tax on the bonus can be dramatically higher than someone earning GBP 80,000 would experience on the same bonus amount.

This is important when comparing job offers. An offer of GBP 95,000 base plus a GBP 15,000 bonus does not produce the same take-home as an offer of GBP 110,000 base, even though the gross total is identical. The timing and composition of pay matters because the taper treats concentrated income differently from salary sacrifice-adjusted income.

Common misunderstandings

"There is actually a 60 percent tax band"

There is no formal 60 percent band. The effect comes from the interaction of the 40 percent higher rate and the personal allowance taper. But in practical terms, the result is the same: you keep roughly 38p of each additional pound in the taper zone.

"This only affects very high earners"

With frozen thresholds and wage inflation, GBP 100,000 is increasingly common for senior professionals, experienced technical roles, and management positions in high-cost areas. It is no longer a niche concern.

"I should just earn less to avoid the trap"

That is rarely the right conclusion. The taper makes the next GBP 25,140 of income expensive in tax terms, but it does not make it worthless. The question is usually whether to redirect some of that income to pension via salary sacrifice rather than whether to refuse a raise.

"Salary sacrifice is risky here"

Salary sacrifice into pension is well-established and widely used. The risk people sometimes worry about is reducing their cash income too much, which is why modelling the trade-off properly matters. The salary sacrifice calculator shows exactly how much take-home you give up for each pound redirected to pension.

Who should care most about this

The 60 percent trap is most relevant if you:

• earn between GBP 95,000 and GBP 130,000, or expect to reach that range with a raise or bonus
• receive annual bonuses that push total earnings above GBP 100,000
• are comparing job offers where one or both have total compensation in the taper zone
• have not yet explored salary sacrifice as a way to manage the taper
• are approaching GBP 100,000 and want to plan before crossing the threshold rather than reacting after

What to do about it

The most practical steps are:

1. Run the take-home pay calculator at your current salary to see where you stand 2. Use the salary sacrifice calculator to model how much pension contribution it would take to keep adjusted income at or below GBP 100,000 3. If a raise or bonus is expected, use the pay rise calculator or bonus tax calculator to see how much you actually keep 4. Talk to your employer about salary sacrifice if it is not already available

What the calculators still do not capture

PayPath models the personal allowance taper in its annual take-home estimates. It does not model:

• childcare benefit tapers and high-income child benefit charges
• marriage allowance interactions
• benefits in kind that affect adjusted net income
• carry-forward of unused pension annual allowance
• lifetime or annual allowance planning for very large pension contributions
• the tapered annual allowance for pension contributions above GBP 260,000 adjusted income

These are areas where regulated financial advice is especially valuable for people in the taper zone.

The practical rule for this guide

If your income is at, near, or above GBP 100,000, always model the after-tax effect before assuming a raise, bonus, or new offer will improve your monthly position by the amount the headline suggests. The 60 percent trap does not make earning more pointless, but it does make earning more expensive, and salary sacrifice is usually the most practical response.