The 60% tax trap: why earning £100k–£125,140 costs you more than you think

What actually happens between £100,000 and £125,140

There's no “60% tax band” listed anywhere in HMRC's rates. The 60% figure is a side-effect of two rules operating at once: the standard 40% higher rate, and a separate withdrawal of the Personal Allowance once income passes £100,000. It's the second rule that does the damage.

For every £2 of income above £100,000, £1 of Personal Allowance is taken away. That means an extra pound of salary in this band isn't just taxed at 40% itself – it also makes 50p of previously tax-free income taxable at 40%, because the allowance covering it has shrunk. £1 of extra income effectively creates £1.50 of extra taxable income, and 40% of £1.50 is 60p. That's the 60%.

How the taper is calculated

The standard Personal Allowance for 2026/27 is £12,570. Above £100,000 of income it reduces by £1 for every £2 earned above that threshold, until it reaches £0 at £125,140 – a band exactly £25,140 wide, because £12,570 × 2 = £25,140.

Read down the Personal Allowance column: it falls by exactly £2,500 for every £5,000 of extra gross income – £1 for every £2, as the rule states. By £125,140 it has reached zero and every additional pound of income is taxed only at the ordinary rate for its band, with no further allowance to lose.

Worked example at £120,000

At £120,000, income is £20,000 above the £100,000 taper threshold, so the Personal Allowance loses £1 for every £2 of that £20,000 – a reduction of £10,000, leaving £2,570 of the standard £12,570 allowance. Taxable income is therefore £117,430 (£120,000 minus £2,570), all of it taxed at either 20% or 40% since none of it reaches the £125,140 additional-rate threshold.

The result is £39,432 of Income Tax and £4,410.60 of employee National Insurance, leaving take-home pay of £76,157.40 a year. Compare that with a salary of £100,000, where the allowance is still intact: take-home pay there is £68,557.40. The extra £20,000 of gross salary between the two only adds £7,600 to take-home pay – an effective rate of 62% on that slice once National Insurance is included.

What replaces it above £125,140

Once income passes £125,140, the Personal Allowance has already reached zero, so there's nothing left to withdraw. The marginal Income Tax rate drops back down – to 45%, the additional rate, plus 2% employee National Insurance, for a combined 47%. Counter-intuitively, someone earning £130,000 faces a lower marginal rate on their next pound than someone earning £115,000.

Ways people reduce their exposure to the taper

The £100,000 threshold isn't measured against gross salary directly – it's measured against “adjusted net income”, which is total taxable income minus gross pension contributions and Gift Aid donations (grossed up). This is why paying more into a pension, or increasing pension contributions specifically in a year where income crosses £100,000, is a common and legitimate way to reduce or avoid the taper.

• A pension contribution large enough to bring adjusted net income back under £100,000 restores the full Personal Allowance – the tax relief on the contribution effectively includes clawing back the allowance that would otherwise be lost.
• Salary sacrifice into a pension reduces gross salary itself (not just taxable income after the fact), which also reduces the National Insurance bill on the sacrificed amount.
• Gift Aid donations are grossed up and deducted from adjusted net income in the same way as pension contributions, though the cash cost is obviously real rather than deferred into a pension pot.

Why this band exists at all

The Personal Allowance taper was introduced in April 2010 as a way to withdraw the tax-free allowance from higher earners without creating a new headline tax band or rate. Structurally it achieves the same effect as a higher rate would, but because it operates through an allowance rather than a rate, it doesn't appear on the standard list of Income Tax rates – which is exactly why it catches people by surprise.