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
⚠️ 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?
How does the 60% tax rate work?
How can I avoid the 100k tax trap?
The numbers in black and white — 2026/27
These figures use standard 1257L code, no pension, no other income. Tax only — NI and student loan not included.
| Income | Tax paid | Effective rate | Personal allowance | Status |
|---|---|---|---|---|
| £100,000 | £27,432 | 40% | £12,570 | No trap |
| £110,000 | £33,432 | 60% | £7,570 | Inside trap (60%) |
| £120,000 | £39,432 | 60% | £2,570 | Inside trap (60%) |
| £125,140 | £42,516 | 60% | £0 | Trap ends |
| £130,000 | £44,703 | 45% | £0 | Above trap |
Figures are income tax only. Use the calculator above for your personalised breakdown including NI.
The childcare cliff — why £100k hurts parents most
For parents with young children, the £100,000 threshold is a financial cliff that goes far beyond the 60% tax rate. The moment your adjusted net income hits £100,000, you lose two childcare benefits simultaneously:
Tax-Free Childcare
Up to £2,000/child/year
The government adds 20p for every 80p you put into your childcare account. Losing this for two children costs up to £4,000/year.
30 Free Hours (England)
~£5,000–£7,000/child/year
15 hours expands to 30 hours of free childcare per week for 3–4 year olds. One child in nursery 5 days a week: this benefit is worth as much as £7,000/year.
Real-world example
A parent earning £101,000 with two children in nursery could be losing £10,000+ per year in childcare benefits — on top of the 60% tax rate on their income above £100k. That parent is genuinely worse off than a colleague earning £99,500. A pension contribution of £1,500 (costing just £600 in take-home after the 60% rate) could restore all of it.
How to escape the £100k trap
The trap is based on adjusted net income — not your gross salary. That means you can legally reduce your exposure by lowering your adjusted net income back to £100,000 or below.
Salary sacrifice pension (most effective)
Your employer reduces your gross pay and pays the difference directly into your pension. The contribution reduces your adjusted net income pound-for-pound. A £10,000 sacrifice from a salary of £110,000 brings you back below £100,000 — restoring your full personal allowance. The saving: £6,000 in tax, and the pension contribution costs you only £4,000 in take-home because of the 60% rate. Effectively the government contributes 60p for every 40p you put in.
Personal pension contribution
Make a direct contribution to a personal pension (e.g. SIPP). You pay £8,000, the provider claims 20% basic rate relief automatically (making it £10,000 in your pension), and you claim the remaining 20% higher rate relief via Self Assessment. Your adjusted net income is reduced by £10,000. Less tax-efficient than salary sacrifice (no NI saving) but available when your employer doesn't offer salary sacrifice.
Gift Aid donations
Cash donations to registered charities via Gift Aid reduce your adjusted net income. Donate £8,000, the charity claims £2,000 from HMRC, and your adjusted net income falls by £10,000. This is useful if you were already planning to donate — it effectively delivers a 60% tax saving on the donation.
Salary sacrifice for other schemes
Cycle to Work, electric vehicle leasing, and other salary sacrifice schemes all reduce adjusted net income. An EV lease through your employer can save thousands — the BiK rate for fully electric vehicles is just 2% in 2026/27, and the lease cost via salary sacrifice reduces your adjusted net income.
Work out your pension escape route
Our salary sacrifice calculator shows exactly how much you need to contribute to get back below £100,000 — and what it costs you in real take-home pay.