High earner tax · Guide

The 60% tax trap: how it works and how to escape it.

If your income sits between £100,000 and £125,140, every additional pound is taxed at an effective rate of 60%. The mechanism is the personal allowance taper, and the most common escape route is a pension contribution.

By Pension Bible editorial team·Last reviewed 9 April 2026·5 min read

How withdrawing the personal allowance creates 60% tax

The 60% rate is not printed on any HMRC rate card. It emerges from the interaction of two rules: the 40% higher-rate income tax band, and the personal allowance taper introduced in 2010.

Everyone starts with a personal allowance of £12,570. No tax is due on this amount. But once total income exceeds £100,000, the allowance shrinks by £1 for every £2 of excess income. At £125,140, the allowance reaches zero.

The arithmetic within that £25,140 band works like this: for every extra £1 earned, 40p goes to income tax (the standard higher rate). But the loss of 50p of personal allowance means 50p of previously untaxed income now falls into the basic-rate band and is taxed at 20% — adding another 20p. Total: 60p per pound.

This is not a penalty or anti-avoidance measure. It is a structural feature of the tax system, and it applies equally to salary, bonuses, dividends, and rental income.

Who falls into it (£100k-£125,140)

The trap catches anyone whose adjusted net income — broadly, gross income minus pension contributions and Gift Aid — lands in the £100,000 to £125,140 corridor. In practice, this often includes:

• Employees on salaries between £100,000 and £130,000 (before pension contributions)
• Professionals receiving a year-end bonus that pushes total pay above £100,000
• Contractors and sole traders with fluctuating annual profits
• Higher earners with significant dividend income

HMRC does not flag this on your tax code. The taper is applied automatically in the self-assessment calculation, which is why many earners discover it only when they file their return.

The salary sacrifice solution

Salary sacrifice is the most tax-efficient way to escape the trap because it reduces gross pay before either income tax or National Insurance is applied. The employee agrees to a lower contractual salary, and the employer pays the difference directly into the pension.

The effect: adjusted net income drops below £100,000, restoring the personal allowance in full (or in part, depending on the contribution size). Because the sacrificed amount never counts as the employee's income, it also avoids the 2% employee NI charge.

For those without access to a salary sacrifice scheme — typically the self-employed or employees whose employer does not offer it — a personal pension contribution achieves the same income tax result. The contribution is deducted from adjusted net income, restoring the allowance. The difference is that NI savings are not available on personal contributions.

The salary sacrifice calculator shows the combined NI and income tax saving.

Worked example: saving £6,000+ with a pension contribution

Take an employee earning £115,000 gross. Without any pension contribution:

• Personal allowance: £12,570 minus taper = £12,570 - ((£115,000 - £100,000) / 2) = £5,070
• Allowance lost: £7,500

If this employee makes a £15,000 pension contribution via salary sacrifice:

• Adjusted net income drops to £100,000
• Personal allowance is restored to £12,570
• Income tax saved on the contribution: £15,000 x 40% = £6,000
• Tax saved by restoring the allowance: £7,500 x 20% = £1,500
• Employee NI saved: £15,000 x 2% = £300
• Total tax benefit: £7,800 on a £15,000 contribution

The effective cost of putting £15,000 into the pension is £7,200 — less than half the contribution. The sixty percent trap calculator models this for any salary in the range.

This is factual information, not financial advice. If you're unsure what's right for your situation, speak to an FCA-regulated financial adviser.