The 60% Tax Trap Explained
Last updated: 26 July 2026
The 60% tax trap is an effective marginal tax rate that applies to income between £100,000 and £125,140 in 2026/27. For every £2 you earn above £100,000, you lose £1 of your tax-free Personal Allowance — on top of the 40% Income Tax you already pay, this creates a combined effective rate of 60%.
How the 60% Trap Works
In 2026/27, the standard Personal Allowance is £12,570. This is the amount you can earn tax-free. However, HMRC reduces this allowance by £1 for every £2 earned above £100,000. By the time your income reaches £125,140, your entire Personal Allowance has been withdrawn.
This creates a hidden tax rate. On income in this band, you pay:
| Component | Rate | Why |
|---|---|---|
| Income Tax (higher rate) | 40% | You are in the higher rate band above £50,270 |
| Personal Allowance withdrawal | 20% | Each £1 of lost allowance costs 20p in tax on previously tax-free income |
| National Insurance | 2% | Class 1 employee NI above £50,270 |
| Combined effective rate | 62% | Including NI; 60% on Income Tax alone |
For example: earning £110,000 vs £100,000 means £10,000 extra gross, but approximately £3,800 extra take-home — an effective rate of 62%.
How to Escape the 60% Tax Trap
The most effective solution is a pension contribution. Because pension contributions reduce your “adjusted net income” — the figure HMRC uses to calculate Personal Allowance withdrawal — contributing £10,000 to a pension at £110,000 gross brings your adjusted income back to £100,000, restoring your full allowance and saving up to £6,000 in tax.
- Salary sacrifice pension — the most tax-efficient method. Reduces both taxable income and NI contributions.
- Personal pension (SIPP) — also reduces adjusted net income. Claim the higher rate relief through Self Assessment.
- Gift Aid donations — also reduce adjusted net income and can restore allowance.
- Consider timing — if you can defer a bonus to a different tax year, you may avoid crossing £100,000 entirely.
See exactly how pension contributions reduce the tax trap for your salary:
Compare take-home pay around the trap: