Question 1

What is the 60% tax trap?

Accepted Answer

The 60% tax trap is the effective marginal tax rate that applies between £100,000 and £125,140 of adjusted net income. For every £2 you earn above £100,000, you lose £1 of your £12,570 personal allowance. Combined with the 40% higher rate income tax, this creates a 60% effective rate on income in that band.

Question 2

How can I avoid the 60% tax trap?

Accepted Answer

The most common way to reduce the impact of the 60% tax trap is to make pension contributions that bring your adjusted net income below £100,000. This preserves your full personal allowance of £12,570. Charitable donations under Gift Aid also reduce adjusted net income.

Question 3

What is adjusted net income?

Accepted Answer

Adjusted net income is your total taxable income minus certain deductions including pension contributions (both personal and salary sacrifice), Gift Aid donations, and trading losses. It is the figure HMRC uses to determine whether your personal allowance should be tapered.

Question 4

At what income level do I lose my entire personal allowance?

Accepted Answer

Your personal allowance is fully withdrawn at an adjusted net income of £125,140. The taper begins at £100,000 and removes £1 of personal allowance for every £2 of income above that threshold. Since the personal allowance is £12,570, it reaches zero at £100,000 + (£12,570 × 2) = £125,140.

Question 5

Does the 60% tax trap apply to Scottish taxpayers?

Accepted Answer

Scottish taxpayers are subject to different income tax rates and bands set by the Scottish Parliament, but the personal allowance taper still applies because it is set by the UK government. The effective marginal rate in the taper zone may differ from 60% depending on the Scottish rate that applies in that income band.

The 60% tax trap — and how to escape it