The £100,000 Tax Trap: Why the Next £25,140 Can Be So Expensive

Crossing £100,000 of adjusted net income can make the next slice of earnings unusually expensive. The reason is not a special 60% tax band. It is the gradual loss of your Personal Allowance.

Rules checked: 26 September 2026. This article uses the 2026/27 UK tax year and is general information, not personalised tax or financial advice.

What actually happens at £100,000?

For 2026/27, the standard Personal Allowance is £12,570. Once your adjusted net income exceeds £100,000, that allowance is reduced by £1 for every £2 above the threshold. It reaches zero at £125,140.

HMRC sets out the current rules on its Income Tax rates and Personal Allowances page.

Why people call it a 60% tax trap

For someone in England, Wales or Northern Ireland paying the 40% higher rate, every additional £2 of income above £100,000 can do two things:

• the £2 itself is taxed at 40%, costing 80p; and
• you lose £1 of Personal Allowance, exposing another £1 of income to 40% tax, costing a further 40p.

That is £1.20 of Income Tax on £2 of extra income: an effective 60% marginal Income Tax rate across the taper range. For an employee above the Upper Earnings Limit, employee National Insurance is currently another 2%, so the marginal deduction on employment income can be about 62% before other deductions such as student loans.

Scotland has different Income Tax bands and rates, so the numbers are different even though the Personal Allowance taper still applies.

A simple £110,000 example

Suppose your adjusted net income rises from £100,000 to £110,000. Your Personal Allowance falls by £5,000. In England, Wales or Northern Ireland, the additional £10,000 is subject to 40% Income Tax, while the lost £5,000 of allowance creates another £2,000 of tax.

That means roughly £6,000 of additional Income Tax on the £10,000 increase. Employee National Insurance can reduce the cash received further. The exact result depends on your circumstances and payroll.

The important number is adjusted net income, not salary

A £99,000 salary does not automatically mean you are below the threshold, and a salary above £100,000 does not automatically tell you what your adjusted net income will be.

HMRC’s adjusted net income guidance starts with taxable income and then applies specific adjustments. Income can include salary, taxable employment benefits, savings interest, dividends, rental income and other taxable sources. Certain pension contributions and Gift Aid donations can reduce adjusted net income.

Why the threshold can matter beyond Income Tax

For parents, £100,000 can be more than a tax issue. Tax-Free Childcare and Free Childcare for Working Parents currently use an expected adjusted net income limit of £100,000 for each parent. Crossing it can therefore have a much larger household impact than the tax calculation alone suggests.

Check the current eligibility rules directly on GOV.UK before relying on them: Tax-Free Childcare and Free Childcare for Working Parents.

Where pensions enter the picture

Pension contributions can reduce adjusted net income, depending on how the contribution is made. With a relief-at-source pension, HMRC normally uses the grossed-up contribution when calculating adjusted net income. Salary sacrifice works differently because you agree to give up salary in exchange for an employer pension contribution.

This does not mean everyone around £100,000 should automatically divert everything above the threshold into a pension. Pension money is locked away until pension-access rules allow it, your pension annual allowance may need checking, and cash-flow needs matter.

The standard pension annual allowance is £60,000 in 2026/27, but it can be lower for some people, including certain high earners and people who have flexibly accessed a pension. HMRC explains the rules in its annual allowance guidance.

A better way to think about the decision

Do not ask only, “How do I avoid the 60% tax trap?” Ask what the next pound needs to do for you.

• If you need the money soon: pension locking may be more important than the tax saving.
• If retirement funding is behind plan: pension contributions may have unusually strong tax economics in the taper range.
• If you have young children: model childcare eligibility as well as Income Tax.
• If bonuses and benefits move your income around: estimate adjusted net income across the whole tax year rather than looking only at base salary.
• If you are close to the line: leave room for taxable benefits, savings interest and other income you may otherwise overlook.

The Wealth Margin view

The £100,000 threshold is a good example of why a higher salary and greater financial freedom are not always the same thing. The useful move is not to obsess over avoiding tax at any cost. It is to understand the trade-off between money available today, money invested for later and any wider benefits affected by your adjusted net income.

For more on the boundaries of our content, read the Financial Disclaimer.