Most people know the UK has a 45% Additional Rate band. Far fewer realise that earners between £100,000 and £125,140 face an effective marginal tax rate of 60% — without that rate ever appearing on an HMRC document. This is the Personal Allowance taper.
How the Taper Works
The standard Personal Allowance is £12,570. For every £2 of income above £100,000, you lose £1 of your Personal Allowance. By the time income reaches £125,140, the allowance is entirely gone.
Here is the maths on a single extra £2 of income within the £100,000–£125,140 range:
- 40% Higher Rate tax on the £2 of additional income = 80p
- 20% Basic Rate tax on the £1 of allowance lost (previously untaxed) = 20p
- Total tax on £2 = £1.00 → effective rate of 60% (before National Insurance)
When you add employee National Insurance at 2% (the rate that applies above the Upper Earnings Limit), the combined marginal rate reaches 62%.
A Practical Example
| Income | Personal Allowance | Tax Paid |
|---|---|---|
| £100,000 | £12,570 (full) | ~£27,432 |
| £110,000 | £7,570 (tapered) | ~£33,432 |
| £125,140 | £0 (fully withdrawn) | ~£42,484 |
The extra £25,140 of earnings between £100,000 and £125,140 generates roughly £15,052 in income tax — an average rate of 59.9%.
Who Is Affected?
This trap catches anyone whose adjusted net income exceeds £100,000. Adjusted net income is your total income minus:
- Gift Aid donations (grossed up)
- Personal pension contributions
- Trading losses
It does not include employer pension contributions, which are not counted as your income.
How to Escape the Trap
The most effective mitigation strategies are:
1. Pension contributions. Increasing your personal pension contribution reduces your adjusted net income, potentially keeping you below £100,000 and restoring your full allowance. A £10,000 pension contribution by a £110,000 earner could save £6,000 in tax — effectively the government funds 60p of every £1 put into a pension.
2. Gift Aid donations. Donations to registered charities under Gift Aid reduce your adjusted net income in the same way.
3. Salary sacrifice. Arrangements through your employer to sacrifice salary for pension contributions, childcare vouchers, or cycle-to-work schemes can reduce gross earnings that feed into adjusted net income.
Key Takeaway
The 60% trap is entirely legal and deliberate tax policy, but it is also entirely avoidable with planning. If your income is close to £100,000, it is worth reviewing your pension contributions before the end of the tax year.
Try our £100k Tax Trap Calculator to see exactly how deep you are into the 62% effective rate zone (or 69.5% in Scotland), the salary sacrifice amount needed to escape, and the tax savings.