The UK 100k Tax Trap by Salary — Effective Marginal Rate Analysis
Original analysis of the UK 60% tax trap caused by Personal Allowance taper between £100,000 and £125,140. Effective marginal-rate curve, salary-by-salary breakdown, and the additional bite from withdrawn tax-free childcare benefits.
Salary-by-salary marginal rate (England/Wales/NI)
| Gross income | Band | Effective marginal rate | Composition |
|---|---|---|---|
| £99,000 | Higher rate (no taper) | 42% | 40% IT + 2% NI |
| £100,000 | Threshold reached | 42% | Last £ before taper kicks in |
| £105,000 | Inside taper | 62% | 40% IT + 2% NI + 20% PA loss = 62% |
| £110,000 | Inside taper | 62% | Same 62% effective |
| £115,000 | Inside taper | 62% | Same 62% effective |
| £120,000 | Inside taper | 62% | Same 62% effective |
| £125,140 | PA fully withdrawn | 47% | 45% additional + 2% NI |
| £130,000 | Above taper | 47% | 45% IT + 2% NI |
Marginal rate excludes student loan repayments. Plan 2 borrowers add 9% above £28,470, which makes the 62% trap into a 71% trap — an even sharper cliff in the under-30s "graduate professional" cohort.
The childcare cliff at £100,001
| Benefit | Annual value | Cut-off |
|---|---|---|
| Tax-Free Childcare | Up to £2,000/yr/child | Either parent earns £100k |
| 30 hours free childcare (England) | ~£7,500/yr value | Either parent earns £100k |
| Combined cliff at £100k for 2 children under 5 | ~£11,500/yr loss | Crossing £100,000 of ANI |
The childcare losses are binary — they disappear at the £100,001 ANI mark even if your income exceeds the threshold by £1. Combined with the 62% income-tax taper, a £101,000 earner with two pre-school children can be materially worse off than a £99,999 earner.
Why this matters
The £100,000 taper was introduced in Finance Act 2009, applying from 2010-11. The threshold has not moved since. CPI-indexed, it would be around £142,400 in 2026-27 — meaning a band that was originally aimed at the top ~1% of earners now affects roughly 1.4 million UK taxpayers. The combined freeze of the PA, taper start, higher-rate threshold and additional-rate threshold compresses progressive structure into a series of cliffs.
The pension-contribution exit is well-known to advisers but under-used by affected taxpayers. A £25,000 pension contribution from a £125,140 earner reduces ANI to £100,140 — restoring £12,500 of the £12,570 Personal Allowance, recovering £5,000 of tax, and the contribution itself enjoys 40% relief. Effective combined relief: ~60%. The block on this strategy is the £60,000 annual allowance (tapered down to £10,000 for incomes above £260,000) and individual cash-flow capacity.
Try the relevant calculators
- Income Tax Calculator — see your tax with the taper applied
- Take-Home Pay Calculator — full breakdown including NI
- Pension Tax Relief Calculator — model the exit strategy
- Personal Allowance Real Terms research — companion analysis
- UK Fiscal Drag 2026-27 research — companion analysis
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