The £100,000 Tax Trap — How It Works and How to Avoid It
If your salary is approaching £100,000, you're about to enter one of the most punishing sections of the UK tax system — a band where your effective marginal tax rate hits 60%. Here's exactly what happens, why it exists, and — crucially — how to avoid it.
What is the £100,000 tax trap?
The UK personal allowance — the amount you can earn before paying income tax — is £12,570 for 2026/27. Most people keep this in full. But once your adjusted net income exceeds £100,000, HMRC starts withdrawing it at a rate of £1 for every £2 earned above £100,000.
By the time your income reaches £125,140, the entire personal allowance is gone.
Why does this create a 60% tax rate?
On earnings between £100,000 and £125,140 you're hit by a double effect:
- You pay the normal 40% higher rate income tax on those earnings
- You also lose £1 of personal allowance (worth 40p in tax) for every £2 earned
Combined: 40% + 20% (the tax cost of losing the allowance) = 60% effective marginal rate.
The numbers in full
| Salary | Personal allowance | Effective rate on last £1 |
|---|---|---|
| £99,999 | £12,570 | 40% |
| £100,000 | £12,570 | 40% → 60% starts |
| £110,000 | £7,570 | 60% |
| £120,000 | £2,570 | 60% |
| £125,140 | £0 | 60% → back to 40% |
| £125,141+ | £0 | 40% (then 45% above £150k) |
How to avoid the trap
The key is reducing your adjusted net income below £100,000. The most effective way to do this is pension contributions, because they reduce your adjusted net income pound for pound.
Pension contributions
If your salary is £110,000, contributing £10,000 into your pension brings your adjusted net income back to £100,000. You avoid the trap entirely and:
- Get 40% tax relief on the contribution
- Restore £5,000 of personal allowance (worth another £2,000)
- Effectively receive 60p of pension savings for every 40p you put in
Salary sacrifice is even more efficient — because the contribution comes from gross pay before NI, you also save 2% NI on the sacrificed amount.
Gift Aid donations
Charitable donations made through Gift Aid also reduce your adjusted net income. A £1,000 Gift Aid donation reduces your adjusted net income by £1,250 (the grossed-up value), providing 40% tax relief and potentially restoring personal allowance.
Other reliefs
- Trading losses from self-employment
- Certain property losses
- Pension contributions for a non-earning spouse (up to £3,600 gross)
The personal allowance is also lost at £125,140+
Once you earn above £125,140, the rate drops back to 40% — but you've permanently lost the personal allowance. Someone earning £125,140 pays the same effective rate as someone earning £150,000 on that slice. The trap ends but the damage is done.
Model the £100,000 trap for your salary
Our salary calculator shows your exact take-home at any income level, including the impact of pension contributions.