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Based on a £100,000 salary and £68,558 take-home, here's what most people miss
Based on a £100,000 salary and £68,558 take-home, here's what most people miss
Get My Insights →The £100k Tax Trap Explained
In the UK, earning over £100,000 comes with a hidden sting: a 60% effective marginal tax rate that applies to every pound you earn between £100,000 and £125,140. This section of the income spectrum is often called the £100k tax trap.
Understanding how it works and how to escape it can make a significant difference to your take-home pay.
How the £100k Tax Trap Works
Most UK taxpayers receive a Personal Allowance of £12,570, which is the amount of income you can earn free of income tax. However, this allowance is gradually withdrawn for incomes above £100,000. For every £2 you earn over £100,000, you lose £1 of Personal Allowance.
The allowance is completely gone by the time your income reaches £125,140.
Why the Effective Rate is 60%
In the £100,000 to £125,140 band you are already a 40% higher-rate taxpayer. On top of that, each additional £2 of income withdraws £1 of Personal Allowance, dragging that previously untaxed £1 into the 40% tax bracket. The combined effect:
- 40% tax on the extra income itself
- 40% tax on the £1 of newly taxable income (lost Personal Allowance)
- Total: 80p tax on every £2 earned, which works out as a 40% rate plus 40% on the lost allowance equivalent, giving a 60% effective rate
Add 2% National Insurance (which still applies in this band), and the true marginal rate is approximately 62%.
Take-Home Pay: £95k to £130k (2025/26)
The table below shows how take-home pay slows dramatically as your salary moves through the trap. Use the calculator above to explore your specific situation.
| Gross Salary | Income Tax | National Insurance | Estimated Take-Home |
|---|---|---|---|
| £95,000 | £25,432 | £3,910 | £65,658 |
| £100,000 | £27,432 | £4,010 | £68,558 |
| £105,000 | £30,432 | £4,110 | £70,458 |
| £110,000 | £33,432 | £4,210 | £72,358 |
| £115,000 | £36,432 | £4,310 | £74,258 |
| £120,000 | £39,432 | £4,410 | £76,158 |
| £125,140 | £42,516 | £4,513 | £78,111 |
| £130,000 | £44,703 | £4,610 | £80,687 |
How to Avoid the £100k Tax Trap
The most widely-used strategy is to reduce your adjusted net income below £100,000. HMRC calculates adjusted net income after deducting personal pension contributions and certain other reliefs. Here are the main approaches:
1. Pension Contributions (Salary Sacrifice or Personal)
Contributing to a pension is the most powerful tool. If your employer offers salary sacrifice, contributions reduce your gross pay for tax and NI purposes, avoiding both the 60% trap and the 2% NI charge. If salary sacrifice is not available, personal contributions still reduce your adjusted net income and reclaim the full Personal Allowance.
Example: earning £110,000 and contributing £10,000 to a pension brings your adjusted net income back to £100,000, restoring your full Personal Allowance and cutting your tax bill by roughly £5,028.
2. Gift Aid Donations
Charitable donations made under Gift Aid also reduce your adjusted net income. If you already give to charity, this can be a tax-efficient way to chip away at the trap.
3. Timing of Bonuses or Earnings
If you have some flexibility over when you receive income (such as bonuses or self-employed earnings), consider whether timing them into a different tax year might keep you under £100,000 in a given year.
The Ceiling and When the Trap Is Unavoidable
The 60% rate only applies within the taper band, from £100,000 to £125,140. Above that threshold the marginal rate drops back to 45% (Additional Rate). The maximum possible additional tax cost from the taper is £5,028 (the full Personal Allowance of £12,570 taxed at 40%), beyond which no further taper penalty applies.
If your income is already well above £125,140, reducing it below £100,000 may not be practical or desirable given your income level or goals. In that case the trap is simply a known cost of earning at that level, and broader tax efficiency across your full income is more relevant than targeting the taper threshold.
Where pension contributions are most impactful is when your adjusted net income sits within the taper band. Each pound contributed between £100,001 and £125,140 saves 60 to 62p in tax, compared with the usual 40p at the higher rate. Use the Pension Contributions Calculator to model the impact on your take-home pay and retirement savings.
Frequently Asked Questions
Does the £100k trap apply in Scotland?
Yes. The Personal Allowance taper is a UK-wide rule set by HMRC. However, Scottish taxpayers pay different income tax rates on their income above the Personal Allowance, so the effective marginal rate in the trap may differ slightly.
What counts as "income" for the taper?
The taper is based on your adjusted net income, which includes employment income, self-employment profits, rental income, savings interest, and dividends, but is reduced by pension contributions, Gift Aid donations, and trading losses.
Is the 60% rate official?
HMRC does not officially describe it as a 60% rate, but it is the widely recognised effective marginal rate produced by the combination of 40% income tax and the 40% implicit cost of losing the Personal Allowance pound-for-pound (at 50p per £1 of income).
What happens above £125,140?
Once income exceeds £125,140, the Personal Allowance has been fully withdrawn and the marginal rate drops back to 45% (Additional Rate) plus 2% NI. Counterintuitively, earning more above this level actually reduces your effective average rate.
Your taxes (2025/26)
| Year | Month | Week | |
|---|---|---|---|
| Gross Income | £37,500 | £3,125 | £721 |
| Pension Contributions£375 Saved! | £1,875 | £156 | £36 |
| Employer Pension ContributionsPot Increased | £1,125 | £94 | £22 |
| Taxable Income | £35,625 | £2,969 | £685 |
| Personal allowance | £12,570 | - | - |
| National Insurance | £1,843 | £154 | £35 |
| Income Tax | £4,611 | £384 | £89 |
| Take Home Pay | £29,171 | £2,431 | £561 |
| Added to Pension | £3,000 | £250 | £58 |
| Opportunities Found | View My Opportunities → | ||
Key Facts: The £100k Tax Trap (2025/26)
- The Personal Allowance (£12,570) is tapered at a rate of £1 for every £2 earned above £100,000
- The taper completes at £125,140, where the Personal Allowance reaches zero
- The effective marginal tax rate in this band is approximately 60% (income tax only) or 62% including National Insurance
- Pension contributions (especially salary sacrifice) are the primary method to reclaim the Personal Allowance
- Gift Aid donations also reduce adjusted net income and can help escape the trap partially
- The trap has existed since the 2010/11 tax year and was extended to £125,140 when the Additional Rate threshold was reduced
Related Calculators & Guides
- Take-Home Pay Calculator: see your exact net pay at any salary
- Pension Contributions Calculator to model how much to contribute to escape the trap
- Self-Employed Tax Calculator (self-employed workers with profits above £100,000 face the same trap)
- Dividend Tax Calculator (dividends count towards adjusted net income)
Explore Your Finances
Model your expenses, project your wealth, and find your path to financial independence.
Your Monthly Outgoings
Projected Pension
Wealth & Financial Independence More Info
- In today's money, you'll have at least £21,600 / year (£1,800 / month) when you retire at 66 - just from your savings
- In real terms (where inflation is not removed), that's £38,340 / year (£3,195 / month)
- That means all your outgoings are covered without having to make any further contributions!
- All your expenses are covered for your retirement, but your wealth may start to decrease towards old age
Projected Wealth
- FI Target = Annual outgoings (£21,600) * Years needed for 4.00% SWR (25.00) = £540,000
- Invested annual pension = £3,000
- Invested annual surplus = £2,171
- Inflation of 2.5% / year
- Assumes New State Pension, payments increasing with inflation (2.5% / year)
- Assumes student loans last 30 years max
- Assumes a flex-drawdown pension for illustration purposes
- Assumes you draw down pension up to the higher rate bracket (£50,270), then draw down your S&S ISA
- Pension lump sums are not included