Tax19 October 2026

The £100,000 Tax Trap: The 60% Rate and How to Escape It (2026/27)

Written and reviewed by, LLM (UK), CFP®·Published

The £100,000 Tax Trap: The 60% Rate and How to Escape It (2026/27)

No official rate table lists a 60% income tax rate, yet a growing number of UK earners pay one. It comes from the way the Personal Allowance is withdrawn above £100,000, and with thresholds frozen until April 2031, ordinary pay rises pull more people into it every year.

For parents, £100,000 is also a cliff edge for Tax-Free Childcare and, in England, funded childcare hours. Here is how the trap works for 2026/27, what it costs, and how to get out of it.

Try it yourself: the Income Tax Calculator shows your Personal Allowance, tax and National Insurance at any salary, so you can see exactly where the taper starts to bite.

How the Personal Allowance taper works

For 2026/27 the Personal Allowance is £12,570. Once your adjusted net income goes above £100,000, your allowance is reduced by £1 for every £2 of income over that line. By £125,140 it has gone completely.

Half of the £25,140 between those figures is £12,570, the full allowance. The rule is set out on the gov.uk page for income over £100,000.

Why the marginal rate becomes 60%

Take someone earning between £100,000 and £125,140 in England, Wales or Northern Ireland. Every extra £1 of income does two things:

  1. The £1 itself is taxed at the higher rate of 40%, so 40p.
  2. It removes 50p of Personal Allowance, and that 50p of previously tax-free income is now taxed at 40%, another 20p.

That is 60p of income tax on every extra £1. Add employee National Insurance at 2% above the Upper Earnings Limit of £50,270 and the combined marginal rate is 62%. You keep 38p of each extra pound.

Adjusted net income (2026/27) Income tax Employee NI Combined marginal rate
£12,570 to £50,270 20% 8% 28%
£50,270 to £100,000 40% 2% 42%
£100,000 to £125,140 60% 2% 62%
Over £125,140 45% 2% 47%

The rate in this band is higher than the additional rate above it. If you also repay a student loan at 9%, the marginal rate in this band reaches 71%.

What counts as adjusted net income

The taper is not based on your salary but on adjusted net income, which HMRC defines in its adjusted net income guidance. In outline:

  • Start with total taxable income: salary, bonuses, benefits in kind, self-employed and rental profits, interest and dividends.
  • Deduct certain reliefs, such as trading losses.
  • Deduct the grossed-up value of Gift Aid donations (for every £1 donated, take off £1.25).
  • Deduct the grossed-up value of relief-at-source pension contributions (for every £1 paid, take off £1.25).

Salary sacrificed into a pension never reaches your taxable pay, so it reduces adjusted net income automatically, as do "net pay" workplace pension contributions taken before tax. You do not need to earn less, you need to reduce the figure HMRC measures.

Worked example: £110,000 salary

Take an employee in England on £110,000 with no other income. Their Personal Allowance falls from £12,570 to £7,570.

£100,000 salary £110,000 salary Difference
Personal Allowance £12,570 £7,570 £5,000 lost
Income tax £27,432 £33,432 £6,000
Employee NI £4,010.60 £4,210.60 £200
Take-home pay £68,557.40 £72,357.40 £3,800

Of the £10,000 earned above £100,000, £6,000 goes in income tax and £200 in National Insurance. Only £3,800 reaches the bank account, which is 38%.

Escape route 1: salary sacrifice into a pension

Now the same employee sacrifices £10,000 of salary into their workplace pension. Taxable pay drops to £100,000 and the full Personal Allowance returns:

  • Income tax saved: £6,000
  • Employee NI saved: £200
  • Reduction in take-home pay: £10,000 minus £6,200 = £3,800
  • Amount added to the pension: £10,000

So £10,000 goes into the pension for a net cost of £3,800, an effective 62% subsidy before any investment growth.

Your employer also saves 15% employer NI (£1,500 on £10,000), and some pass part of it into your pension, so ask. The Salary Sacrifice Calculator models the effect on your take-home pay, and the Pension Calculator projects what the extra contributions could grow to.

A forthcoming change. From April 2029, the National Insurance exemption on salary-sacrificed pension contributions is due to be capped at £2,000 a year. It does not apply in 2026/27, and it does not affect the income tax relief that removes the 60% trap.

Escape route 2: personal pension contributions (relief at source)

Without salary sacrifice, or if you are self-employed, you can pay into a personal pension or SIPP under relief at source. You pay a net amount and the provider adds 20% basic-rate relief.

To bring adjusted net income from £110,000 back to £100,000, you need a gross contribution of £10,000, which means paying £8,000 yourself. The provider adds £2,000.

The rest comes through your tax return: your basic-rate band is extended by £10,000 and your full Personal Allowance returns, cutting your income tax bill by £4,000, claimed through Self-Assessment or by asking HMRC to adjust your tax code.

Salary sacrifice Relief at source
Added to pension £10,000 £10,000 (£8,000 paid plus £2,000 relief)
Income tax saved £6,000 £6,000 (£2,000 to the pot, £4,000 via tax return)
Employee NI saved £200 £0
Net cost to you £3,800 £4,000

The only difference is the £200 of NI. But the extra relief is not automatic: if you do not claim it, you lose it.

Escape route 3: Gift Aid

Gift Aid works the same way. A donation of £8,000 is grossed up to £10,000: the charity claims £2,000 from HMRC, and someone on £110,000 gets their full Personal Allowance back and £4,000 off their own tax bill. You must make a Gift Aid declaration to the charity. See the gov.uk guidance on donating through Gift Aid.

How much to contribute to get back to £100,000

Subtract £100,000 from your expected adjusted net income. Call that the excess.

  • Salary sacrifice: sacrifice the full excess.
  • Relief-at-source pension: pay 80% of the excess (the provider tops it up to 100%).
  • Gift Aid: donate 80% of the excess (the charity's claim grosses it up to 100%).

At the top of the band, someone on £125,140 has an excess of £25,140. A salary sacrifice of £25,140 saves £15,084 in income tax and £502.80 in employee NI, reducing take-home pay by only £9,553.20. Under relief at source they would pay £20,112, with £10,056 of further relief to claim back. Total contributions, including your employer's, must stay within the £60,000 Annual Allowance. Watch bonuses too: many employers allow bonus sacrifice if you elect before it is paid. Salary sacrifice cannot take your pay below the National Minimum Wage.

The childcare cliff edge

For parents, two childcare schemes stop altogether above £100,000 rather than tapering.

  • Tax-Free Childcare (UK-wide): the government adds £2 for every £8 you pay in, up to £500 per child every 3 months (£2,000 a year), or £1,000 every 3 months (£4,000 a year) for a disabled child. You cannot claim if you or your partner's expected adjusted net income is over £100,000 for the current tax year.
  • Free Childcare for Working Parents (England): up to 30 hours a week for 38 weeks of the year for eligible children aged 9 months to 4 years. The same £100,000 test applies to you or your partner.

The test applies to each parent, not the household. Two parents on £90,000 each keep both schemes; one on £100,001 loses them for the family.

Example. A parent earning £101,000 with two children who qualify for Tax-Free Childcare stands to lose up to £4,000 a year of top-ups, plus any funded hours. Sacrificing £1,000 into a pension brings their adjusted net income back to £100,000, costing just £380 in take-home pay (the £1,000 less £600 income tax and £20 NI saved).

Eligibility is based on expected income for the year and is reconfirmed every 3 months, so plan contributions early.

A note for Scotland

Scottish taxpayers have different bands: for 2026/27 the advanced rate of 45% applies from £75,001 to £125,140, with a top rate of 48% above. The Personal Allowance taper still applies, so the trap is steeper: 45% plus half of 45% gives 67.5% between £100,000 and £125,140, or 69.5% with NI. On £10,000 above £100,000, that is £6,750 of income tax. The same escape routes work, and are worth more.

A note on the Autumn Budget

The Autumn Budget on 28 October 2026 could change some of these rules. The figures here are correct for 2026/27 as they stand; check the latest rules on gov.uk before making large contributions.

Frequently asked questions

Is there really a 60% tax band? Not officially. The published rates are 20%, 40% and 45%. The 60% is the effective rate created by the Personal Allowance taper.

Does the taper use my salary or my total income? Adjusted net income, which includes all taxable income less grossed-up pension contributions and Gift Aid. Company directors should review their salary and dividend mix; the Dividend vs Salary Calculator can help.

Is the childcare test based on household income? No. It applies to each parent individually. If either parent's expected adjusted net income is over £100,000, the family loses Tax-Free Childcare and the funded working parent hours.

When do I need to make the contribution? Within the tax year you want it to count for, so by 5 April 2027 for 2026/27. Salary sacrifice has to be agreed with your employer before the pay is earned.

The bottom line

Between £100,000 and £125,140 the Personal Allowance taper creates a 60% income tax rate, 62% with NI, and parents can lose thousands in childcare support for going £1 over. The fix is to reduce adjusted net income, ideally by salary sacrifice, or with relief-at-source contributions and Gift Aid. On a £110,000 salary, putting £10,000 into a pension costs just £3,800 in take-home pay.

Check your numbers with the Income Tax Calculator, then model the pension fix with the Salary Sacrifice Calculator.

Related calculators and guides

This article is for general guidance only and is not personalised tax advice. Tax rules are complex and your circumstances may differ. For advice tailored to your situation, speak to a qualified accountant or tax adviser. Figures are for the 2026/27 tax year and sourced from gov.uk.

Sources

Rates and rules in this article are taken from the official pages below. Figures were checked against these sources at the last review date shown above; always confirm against the source before acting.

About the author

, LLM (UK), CFP®, CIM®, PFP®. Financial planner with 18 years in banking and wealth management, holding a UK master of laws and the Canadian CFP®, CIM® and PFP® designations. Writes and reviews every calculator and article on FinanceToolz.

Rates and thresholds in this article are taken from HMRC and GOV.UK. See our editorial policy for how content is sourced, reviewed and corrected. This is general information, not regulated financial advice.

← Back to all articles