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Summary
The “60% tax trap” is a quirk of the UK tax system where earners between £100,000 and £125,140 face an effective marginal tax rate of around 60%. This happens because the personal allowance (£12,570) is gradually withdrawn at a rate of £1 for every £2 of income above £100,000. Combined with the 40% higher-rate income tax, this creates a 60% effective rate on each additional pound earned in this band.
How it works
The personal allowance taper
Every UK taxpayer receives a tax-free personal allowance of £12,570 (frozen until at least April 2028). However, once your “adjusted net income” exceeds £100,000, this allowance is reduced by £1 for every £2 of income above the threshold. By £125,140, the entire allowance has been withdrawn.
Why 60%?
For each additional £2 earned above £100,000:
- £1 of personal allowance is lost, meaning £1 of previously tax-free income becomes taxable at 40%
- The additional £2 itself is taxed at 40%
So on £2 extra income: you pay 40% on £2 (= £0.80) plus 40% on £1 of lost allowance (= £0.40) = £1.20 tax on £2, which is a 60% marginal rate.
When you add employee National Insurance (2% above £50,270), the effective marginal rate rises to approximately 62%.
The numbers
| Income band | Income tax rate | NI rate | PA taper effect | Total marginal rate |
|---|---|---|---|---|
| £50,271 - £100,000 | 40% | 2% | None | 42% |
| £100,001 - £125,140 | 40% | 2% | +20% | 62% |
| £125,141 - £150,000 | 40% | 2% | None | 42% |
The trap is that you pay a higher marginal rate in the £100k-£125k band than someone earning £150,000+.
Strategies to mitigate the trap
-
Pension contributions — contributing to a pension reduces your adjusted net income. A salary sacrifice pension contribution that brings income below £100,000 effectively “restores” the personal allowance.
-
Gift Aid donations — charitable donations extend your basic rate band and can reduce adjusted net income.
-
Salary sacrifice — exchanging salary for non-cash benefits (pension, cycle to work, electric car) reduces gross pay and can bring income below the taper threshold.
Worked example
Salary: £110,000, no pension or student loan
- Personal allowance reduction: (£110,000 - £100,000) / 2 = £5,000 lost
- Remaining personal allowance: £12,570 - £5,000 = £7,570
- Taxable income: £110,000 - £7,570 = £102,430
- Income tax: £37,700 x 20% + £64,730 x 40% = £7,540 + £25,892 = £33,432
- Employee NI: (£50,270 - £12,570) x 8% + (£110,000 - £50,270) x 2% = £3,016 + £1,195 = £4,211
- Total deductions: £33,432 + £4,211 = £37,643
- Net pay: £110,000 - £37,643 = £72,357
Compare with someone earning £100,000 (full £12,570 allowance):
- Net pay at £100,000: approximately £67,694
- Extra £10,000 gross yields only £4,663 extra net (53.4% effective rate on the marginal £10k)
Inputs explained
- Gross salary — your total annual salary before deductions
- Pension contribution — percentage contributed to a pension (reduces adjusted net income)
- Tax year — determines the personal allowance and taper thresholds
Outputs explained
- Marginal rate chart — shows how the marginal tax rate changes across income levels, with the 60% trap zone highlighted
- Tax saved by pension — shows how much tax you could save by contributing enough to avoid the taper
- Net pay comparison — compares your net pay with and without the taper effect
Assumptions & limitations
- The 60% rate applies to adjusted net income, which may differ from gross salary if you have other income sources or reliefs.
- Scottish taxpayers face different income tax rates (19%, 20%, 21%, 42%, 45%, 48%) but the personal allowance taper still applies in the same way, creating different effective marginal rates.
- The calculator models the taper for a single tax year and does not account for benefits in kind or other complex remuneration.