How to avoid falling into the 60% Income Tax trap when you earn over £100,000

As you progress through your career and continue earning more money, you may have already taken the time to understand how the UK’s tax system works.

Much of it is relatively straightforward. However, for higher earners, a particular quirk can mean you face a larger-than-expected bill: the “60% tax trap”.

This feature of the Income Tax system is more common than you might think. Unbiased reveals that the number of people caught in the trap has risen by 45% in two years, with an 18% increase in the 12 months leading to April 2025.

Continue reading to discover what causes the trap, and some practical ways to mitigate its effects on your wealth.

The 60% trap is caused by a quirk in the Income Tax system

Income Tax in the UK is designed to be progressive – the more you earn, the more you contribute. As of 2025/26, the rates of Income Tax are:

0% up to £12,570 (the Personal Allowance)
20% between £12,570 and £50,270 (the basic rate)
40% between £50,270 and £125,140 (the higher rate)
45% on any income above £125,140 (the additional rate).

While this might seem simple enough, it’s vital to remember that once you earn more than £100,000, your tax-free Personal Allowance tapers.

This essentially means that for every £2 you earn above £100,000, you lose £1 of your Personal Allowance, creating an effective tax rate of 60% on income between £100,000 and £125,140.

For instance, imagine you had an annual income of £110,000. Since you lose £1 for every £2 earned above the threshold, your Personal Allowance would be reduced by £5,000.

This would then be subject to 40% tax, costing you £2,000.

On top of this, you would pay 40% tax on the £10,000 above £100,000, amounting to £4,000. In total, you would pay £6,000 Income Tax on the £10,000 of this portion of your wealth, leaving you with just £4,000. This is where the effective 60% rate comes from.

There are steps you can take to avoid the tax trap

While it might seem challenging to plan around the tax trap, there are some steps you can take to mitigate your Income Tax liability.

Increase your pension contributions

Perhaps one of the more straightforward ways to lower your adjusted net income is by increasing pension contributions.

This is because contributions are typically deducted from your income before tax, reducing the amount of wealth that might be subject to the 60% trap.

Imagine you receive a £1,000 pay rise, taking your total income from £100,000 to £101,000.

If you took this as a salary rise, you’d pay £400 in Income Tax, and your Personal Allowance would be reduced by £500. So, you would pay an extra 20% tax on these earnings, or £200, taking the total tax bill on that £1,000 to £600 (60%).

Whereas, if you paid the £1,000 into your pension instead, you would avoid the 60% trap entirely.

Donate money to charity

Donating some of your wealth to charity is another practical way to reduce your adjusted net income.

These donations essentially extend your basic rate band and reduce your income to manage the Personal Allowance taper.

Like pension contributions, they could help you stay below the £100,000 threshold or limit the amount of allowance you lose.

Better yet, charitable gifts could also enable you to support local causes close to your heart in a meaningful way.

Consider salary sacrifice

The term “salary sacrifice” might sound counterintuitive initially, but it could be an effective way to manage your taxable income.

This government-backed initiative allows you to exchange a portion of your salary for certain benefits, including:

Pension contributions and advice
Financial protection
Employer-provided healthcare.

Since salary sacrifice involves reducing your net income, it could also be a practical way to avoid the 60% tax trap.

As an example, if you earn £110,000, and decide to sacrifice £10,000 of this in exchange for financial protection, you could bring your salary back down to £100,000.

This would help you preserve your Personal Allowance and reduce your overall tax liability.

A financial planner could help you manage your Income Tax liability

Working with a financial planner could be one of the more helpful ways to reduce your tax liability, especially if you’re a higher earner.

By working with us, we could assess your income and identify ways to structure it more efficiently, whether that’s through pension contributions, salary sacrifice, or other bespoke strategies.

We could build a financial plan that helps you avoid unnecessary tax, all while working towards your long-term goals.

To find out more about how we can support you, email [email protected] or call us on 01625 466360.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

Note that financial protection plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.

Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.

The Financial Conduct Authority does not regulate tax planning.