The £100,000 tax trap

On paper, the UK has no 60% income-tax band. In practice, hundreds of thousands of people pay exactly that — and a few pay far more — on a slice of income between £100,000 and £125,140. It is the most punishing quirk in the tax system, and it catches people who don't think of themselves as wealthy: a pay rise, a bonus, or a good year of self-employment can drag you straight into it.

Where the 60% rate comes from

Everyone gets a Personal Allowance — £12,570 of income you can earn tax-free. But once your income passes £100,000, you lose £1 of allowance for every £2 you earn above it. The allowance is gone entirely by £125,140 (that's £100,000 plus £12,570 × 2).

Inside that band, each extra £1 you earn is taxed at the 40% higher rate — but it also strips away 50p of tax-free allowance, and that 50p now gets taxed at 40% too (another 20p). Add the 40p and the 20p together and every extra pound costs you 60p in tax. Throw in 2% employee National Insurance and the real marginal rate is 62%.

A £5,000 bonus inside the trap can leave you with under £1,900 of it.

What counts as adjusted net income

The threshold isn't based on your salary — it's based on your adjusted net income (ANI). That's your total taxable income (salary, self-employment, rent, savings, dividends, pension, foreign income) minus a few things that genuinely reduce it:

• Pension contributions you make personally, grossed up by 25% (a £8,000 payment counts as £10,000).
• Gift Aid donations, also grossed up by 25%.
• Certain trading losses and allowable payments.

This is the key that unlocks the trap. Salary-sacrifice and net-pay pension contributions never appear in your taxable pay in the first place, so they reduce ANI at source. The other contributions reduce it through the gross-up. Either way, pensions and Gift Aid are the two levers that move your ANI — and therefore your Personal Allowance.

The childcare cliff edge

For parents of young children, £100,000 is not a gentle taper at all — it's a cliff. The £100,000 test for government childcare support is per parent, and it is all-or-nothing:

• Tax-Free Childcare — up to £2,000 per child a year — is lost entirely.
• 15 and 30 hours of funded childcare (England) disappears if either parent's ANI tops £100,000.

Scotland: an even steeper trap

The Personal Allowance is a UK-wide figure, but Scotland sets its own rates. In 2025-26 the band covering £100,000–£125,140 falls in Scotland's 45% advanced rate. Losing 50p of allowance taxed at 45% adds 22.5p, so the effective rate is 67.5% — closer to 69.5% once NI is added. The mitigation is the same; the prize is just bigger.

How to climb back out

The good news: the trap is escapable, and the tax relief on the way out is enormous.

• Pension contributions are the most powerful tool. Inside the trap a £1 contribution costs you about 40p after relief — and it restores Personal Allowance, savings allowance and childcare on top.
• Salary sacrifice into a pension does the same job and also saves National Insurance.
• Gift Aid donations reduce ANI through the gross-up — useful if you already give to charity.
• Spreading income between spouses (e.g. holding investments in the lower earner's name) can keep both below the threshold.

A worked example

Priya earns £110,000 in England. She's £10,000 into the trap, so she's already lost £5,000 of allowance. She makes a £10,000 gross personal pension contribution — she pays £8,000 and the scheme reclaims £2,000 basic-rate relief.

The £10,000 in her pension cost her roughly £4,000 — a 60% effective relief. If she also has a toddler in nursery, the recovered Tax-Free Childcare and funded hours can be worth several thousand pounds more, taking the real return well past anything else she could do with the money.