The £100,000 Tax Trap Explained
Why earning between £100,000 and £125,140 can mean an effective 60% marginal tax rate — and what you can do about it.
Based on published UK 2026/27 tax thresholds · England/Wales · Standard PAYE assumptions
People searching for the 100k tax trap or personal allowance taper are often surprised to discover that earning more can feel like it barely increases take-home pay. This guide explains exactly why, using a £100,000 salary tax example, and what you can do to reduce the impact.
How the 60% Marginal Rate Builds Up
Estimated effective marginal tax rate at three income points in 2026/27
Marginal rate shown is the effective rate on each additional £1 earned at that income point, including the Personal Allowance taper effect. Estimated using 2026/27 UK tax thresholds.
What Causes the £100,000 Tax Trap
Every UK taxpayer normally gets a tax-free Personal Allowance of £12,570. But once your income exceeds £100,000, this allowance is gradually withdrawn — reduced by £1 for every £2 you earn above that threshold.
This means that for income between £100,000 and £125,140, you're not just paying 40% higher rate tax on your earnings — you're also losing tax-free allowance that becomes newly taxable at 40%. The combined effect is an effective marginal rate of 60% on income in this band.
A worked example
At £100,000, your full £12,570 Personal Allowance applies and your effective tax rate on the whole salary is 31.4%. By £110,000, your allowance has shrunk to £7,570 — that extra £10,000 of salary was taxed at an effective marginal rate of around 60% once the allowance loss is factored in. By £125,140, your Personal Allowance reaches zero entirely.
How salary sacrifice helps
Pension salary sacrifice reduces your taxable income before the Personal Allowance taper is calculated. If your salary is £110,000 and you sacrifice £10,000 into your pension, your taxable income drops to £100,000 — restoring your full Personal Allowance and turning that 60% marginal rate back into a standard 40% rate on the sacrificed amount, while building your pension at the same time.
Use our salary sacrifice calculator to model your exact saving, or the full PayClear calculator to see your complete take-home picture.
The Child Benefit connection
If you also claim Child Benefit, a similar taper applies between £60,000 and £80,000 (the High Income Child Benefit Charge). Pension salary sacrifice that brings your income below these thresholds can help with both issues simultaneously.
£100k Tax Trap — FAQs
The £100k tax trap refers to the effective 60% marginal tax rate that applies to income between £100,000 and £125,140 in the UK. This happens because your Personal Allowance (normally £12,570) is gradually withdrawn at a rate of £1 for every £2 you earn above £100,000, meaning more of your income becomes taxable on top of the standard 40% higher rate tax.
Above £100,000, for every extra £2 you earn, your Personal Allowance shrinks by £1. That £1 of allowance, which would otherwise be tax-free, becomes taxable at 40%. Combined with the 40% tax on the extra £2 itself, you effectively pay 40% tax on £2 plus 40% tax on an extra £1 of previously tax-free income — working out to an effective 60% marginal rate on income in this band.
Your Personal Allowance reaches zero once your income hits £125,140. At this point and above, the effective marginal rate drops back to 40% (until £125,140, where the 45% additional rate begins on income above that threshold).
Salary sacrifice pension contributions reduce your taxable income before the Personal Allowance taper is calculated. If you sacrifice enough salary to bring your taxable income back below £100,000, you restore your full Personal Allowance — turning a 60% effective marginal rate back into a standard 40% rate on the sacrificed amount, while also building your pension.
Yes, separately. The High Income Child Benefit Charge starts clawing back Child Benefit once one partner earns over £60,000, with it fully withdrawn at £80,000 (2026/27 thresholds). If you earn over £100,000 and also claim Child Benefit, pension salary sacrifice can help with both the Personal Allowance taper and the Child Benefit charge simultaneously.
Yes, generally — even at a 60% marginal rate, you still keep 40p of every extra £1 earned in this band, so earning more remains beneficial overall. The key is using available tools like pension salary sacrifice to minimise how much of your income falls into the 60% zone, maximising your take-home pay and pension growth together.