The 60% Tax Trap: How High Earners Lose More Than Half Their Pay Rise

The 60% tax trap is the marginal tax rate applied to income between £100,000 and £125,140 in the UK. For every additional pound earned in this range, you keep just 40p.

This isn't a special tax band. HMRC doesn't call it 60%. But the maths is clear: the combination of 40% income tax and the tapered loss of your Personal Allowance creates a 60% effective rate. If you're approaching £100k or already there, understanding this trap matters.

#Why the Rate Is 60%

Two things happen simultaneously when you earn between £100,000 and £125,140:

1. You pay 40% income tax on that income (the Higher Rate)
2. You lose £1 of your £12,570 Personal Allowance for every £2 you earn above £100,000

The Personal Allowance is the amount you can earn tax-free each year. Losing it means income that was previously untaxed becomes taxable at 40%.

Here's the breakdown:

• Earn £2 above £100,000
• Pay 40% tax on that £2 = 80p
• Lose £1 of Personal Allowance
• That £1 now gets taxed at 40% = 40p extra tax
• Total tax on £2 earned = £1.20
• Effective rate: 60%

Your Personal Allowance disappears entirely at £125,140. After that, you're back to paying the standard 40% Higher Rate until you hit £150,000 and the 45% Additional Rate kicks in.

#The Numbers in Practice

Here's what happens to a £5,000 bonus at different salary levels:

The person earning £102,000 keeps less of their bonus than someone earning £60,000 or £130,000.

#How Much Is the Trap Costing You?

If your income sits entirely within the trap (£100,000 to £125,140), the Personal Allowance taper costs you an extra £5,028 in tax compared to what you'd pay without the taper.

That's calculated as: £12,570 (full allowance) x 40% (Higher Rate) = £5,028 in extra tax from losing the allowance.

For someone earning exactly £125,140, their total income tax bill is around £42,432. Without the taper, it would be roughly £37,404.

#Three Ways to Escape the Trap

#1. Salary Sacrifice into Your Pension

Salary sacrifice reduces your gross income. If you earn £110,000 and sacrifice £10,000 into your pension, your taxable income drops to £100,000. You've:

• Avoided the 60% trap entirely on that £10,000
• Added £10,000 to your pension tax-free
• Kept your full Personal Allowance

The maths: without salary sacrifice, that £10,000 would net you £4,000 after 60% tax. With salary sacrifice, the full £10,000 goes to your pension. You're effectively getting a 150% uplift on your pension contribution.

#2. Make Gift Aid Donations

Charitable donations through Gift Aid extend your Basic Rate band and can restore your Personal Allowance.

For every £1 you donate:

• The charity claims 25p from HMRC (Basic Rate relief)
• You can claim 25p back (difference between Higher and Basic Rate)
• Your adjusted net income drops by £1.25

A £1,000 donation to charity could restore £625 of your Personal Allowance (£1,250 x £0.50 per £1 of allowance restored).

#3. Time Your Income

If you have control over when you receive income (bonuses, dividends, consulting income), spreading it across tax years can keep you below £100,000 in each year.

This works best for:

• Company directors who control dividend timing
• Consultants who can delay invoicing
• Employees who can defer bonus payments

#The Scottish Complication

Scotland has different income tax rates. Scottish taxpayers in this income range pay 42% income tax (the Higher Rate in Scotland is 42% for 2024/25). Combined with the Personal Allowance taper, the effective marginal rate for Scottish taxpayers earning between £100,000 and £125,140 is 62%.

The same escape routes apply, but the savings from salary sacrifice and Gift Aid are slightly higher.

#Who Should Care About This?

The 60% trap matters most if you:

• Earn between £95,000 and £130,000 (close enough to plan around it)
• Expect a bonus that could push you into or through the trap
• Have flexibility in how and when you receive income
• Haven't maximised pension contributions

If you're well above £125,140 with no realistic way to reduce your income to £100,000, the trap isn't relevant to your planning.

#What BishBashDosh Shows You

The salary sacrifice calculator models exactly how much you'd save by contributing to your pension at different levels. It accounts for:

• The 60% trap and Personal Allowance taper
• National Insurance savings (an additional 2% at this income level)
• Impact on your take-home pay
• Projected pension growth over time

#Frequently Asked Questions

#Is the 60% tax rate official?

No. HMRC doesn't publish a 60% tax band. The 60% effective rate is the combined result of paying 40% income tax while simultaneously losing your tax-free Personal Allowance. The underlying rates are 40% Higher Rate income tax and the £1 of allowance lost for every £2 earned above £100,000.

#Does National Insurance make it worse?

Slightly. Above £50,270, you pay 2% National Insurance on your earnings. So the true marginal rate in the trap is technically 62% (60% income tax effect plus 2% NI). Most discussions round this to 60% for simplicity.

#Can I just ask my employer to pay me less?

No. You can't simply decline part of your salary. But you can redirect it through salary sacrifice arrangements (pension contributions, cycle to work schemes, etc.) which achieve the same tax benefit legally.

#What about the Annual Allowance for pensions?

You can contribute up to £60,000 per year to your pension (or your total earnings, whichever is lower). If you've been employed for several years, you might also have unused allowance from the previous three tax years you can carry forward.

#Does this affect my partner's taxes?

No. UK income tax is individual. Your partner's income and tax are completely separate from yours, except for Marriage Allowance (which only applies if one partner earns below £12,570 and the other is a Basic Rate taxpayer).