Tax Planning

The £100k Tax Trap Calculator

Earning between £100,000 and £125,140? You are facing an effective 60% marginal tax rate. Calculate exactly how much of your personal allowance you are losing, and see how to claim it back.

Your Income & Deductions

£
£

Money given up from your salary into your pension. Reduces adjusted net income.

£

Charity donations made via Gift Aid.

Adjusted Net Income

£110,000

Standard Personal Allowance£12,570
Allowance Lost (The Trap)- £5,000
Your Effective Personal Allowance£7,570

⚠️ You are in the 60% Trap

Because your adjusted net income is between £100k and £125k, you are losing £1 of tax-free allowance for every £2 earned. Your effective marginal tax rate is 60%.

💡 Tip: If you sacrifice an additional £10,000 into your pension, you will restore your full tax-free allowance.

Why is there a 60% tax rate in the UK?

Officially, the UK does not have a 60% tax bracket. The highest official rate of Income Tax is 45% (paid on earnings over £125,140). However, a quirk in the tax system creates an effective 60% rate for people earning between £100,000 and £125,140.

This happens because of the gradual withdrawal of the Tax-Free Personal Allowance. Everyone is normally allowed to earn £12,570 completely tax-free. But once your Adjusted Net Income hits £100,000, the government starts taking this allowance away.

The £1 for £2 rule

For every £2 you earn over £100,000, you lose £1 of your personal allowance. This means if you get a £10,000 pay rise from £100k to £110k:

  • You pay 40% tax on the £10,000 pay rise = £4,000 tax
  • You lose £5,000 of your tax-free allowance. That £5,000 is now suddenly taxed at 40% = £2,000 extra tax
  • Total tax paid on the £10,000 pay rise = £6,000 (which is exactly 60%).

The Double Whammy: Childcare and Child Benefit

The £100k threshold is uniquely painful for parents because hitting exactly £100,000 triggers two immediate cliffs:

  • Tax-Free Childcare lost: You lose the ability to claim up to £2,000 per child in tax-free childcare.
  • Free Hours lost: In England, you lose your 15 or 30 free hours of childcare, which can cost you thousands.

Because of this, an individual earning £99,999 with two children in nursery is often much richer in reality than an individual earning £115,000.

How to escape the £100k Trap

Because the trap is based on your Adjusted Net Income, not your gross salary, you can legally escape it by reducing your adjusted net income to £100,000 or below. The three main ways to do this are:

1. Pension Salary Sacrifice

This is the most common and effective method. By asking your employer to sacrifice a portion of your salary directly into your pension, it never counts towards your adjusted net income. Use our Salary Sacrifice Calculator to see the exact impact on your take-home pay.

2. Gift Aid Donations

If you donate to charity using Gift Aid, the gross value of your donation is deducted from your adjusted net income. If you donate £80, the charity claims £20 from the government making the gross donation £100. This £100 reduces your adjusted net income.

3. Cycle to Work & Other Schemes

Salary sacrifice schemes like Cycle to Work or buying extra annual leave also reduce your adjusted net income.

Summary

If your salary is currently sitting at around £110,000 or £120,000, consider diverting the excess above £100,000 into your pension. Because of the 60% effective tax rate, it only costs you 40p in actual take-home pay to put £1 into your pension!

Frequently Asked Questions

What is the £100k tax trap in the UK?
When your 'adjusted net income' goes over £100,000, your £12,570 tax-free personal allowance goes down by £1 for every £2 you earn above £100,000. This creates an effective marginal tax rate of 60% on earnings between £100,000 and £125,140.
How does the 60% tax rate work?
If you earn £100 over £100k, you pay £40 in standard Income Tax (40% rate). But you also lose £50 of your tax-free allowance, meaning another £50 is now taxed at 40%, costing you another £20. Total tax on that £100 = £60 (hence the 60% effective rate).
How can I avoid the 100k tax trap?
The most common and legal way is to use pension salary sacrifice. By paying the extra money into your pension before it hits your payslip, your adjusted net income drops back down to £100,000, restoring your full tax-free personal allowance.