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This article is for general guidance only and is not financial or professional advice. Any links are for your own information, and do not constitute any form of recommendation by Saga. You should not solely rely on this information to make any decisions, and consider seeking independent professional advice. All figures and information in this article are correct at the time of publishing, but laws, entitlements, tax treatments and allowances may change in the future.
Did you know that it’s possible to pay 60% tax on your income? Whilst the top income tax rate is theoretically 45% (48% in Scotland), for some higher earners their effective rate will be much more.
This isn’t just a minor quirk – it’s a significant financial trap that could cost some people thousands. The good news is that with simple, timely planning, you can legally sidestep it and keep more of your hard-earned money.
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The 60% tax trap is an income danger zone where, if you earn between £100,000 and £125,140, income tax and the personal allowance taper collide to create a situation where you pay tax at an effective rate of 60%.
The problem is the personal allowance taper. Anyone earning up to £100,000 gets the first £12,570 tax-free. But once your income hits six figures, the personal allowance starts to taper off, reducing the amount you can earn tax-free. For every £2 you earn over £100k, you’ll lose £1 of the allowance.
That means that for every £100 of income you have between £100,000 and £125,140 you pay £40 in income tax (as a higher rate taxpayer) and then an extra £50 of your income is now taxed at 40%, costing you another £20. That is effectively a 60% tax rate.
Whilst an income of £100k puts you among the UK’s highest earners, the number of people falling into this tax trap has been growing, due to rising wages and frozen tax thresholds. Figures released by HMRC show that 1.12 million people are estimated to have taxable income over £100,000 in 2025-26 – up from 754,000 in 2022-23.
Once your income exceeds £125,140 you become an additional rate taxpayer with no personal allowance and pay tax at 45%.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, says: “The 60% tax trap is the ultimate stealth tax nibbling away at your income. However, there are things you can do to relieve the pain, with pensions potentially playing a major part.”
Income tax rates are slightly different in Scotland, which actually makes the £100k tax trap worse.
Scotland has an “advanced rate” band between of 45% £75,001 to 125,140 in income, as well as a top rate band of 48%. The rules about the personal allowance are the same as the rest of the UK.
The 45% additional rate band means when you lose your personal allowance, you’re paying an effective rate of 67.5% tax on your income between £100,000 and £125,140.
The £100k tax trap tends to catch people later in their careers, when earnings are at a peak. It can be easy to walk into it without even realising. A pay rise, end-of-year bonus or lucrative project can all push your income into the danger zone.
Charlene Young, senior pension and savings expert at AJ Bell, says: “Whether or not you’re caught by the trap depends on your ‘adjusted net income’. This refers to all income that would be subject to tax, less certain reliefs. So not just earnings, but income from pensions, investments, savings and property too.”
Those most at risk are relatively wealthy people in the run-up to retirement, or just starting to draw their pension. They are likely to have reached their top earning level and may have other income streams that could tip them into the trap. The state pension also counts towards net income too.
It’s worth being aware of the trap if you have more than one source of income, or pay which fluctuates year to year, or have made a pension withdrawal while you are still earning.
There are several ways you can avoid the 60% (or 67.5%, if you’re in Scotland) tax trap, but they all work in the same way – by reducing your taxable income. You can do it via pension contributions, salary sacrifice and charitable donations. But some ways are more valuable to you than others.
The simplest way to dodge paying 60% tax is to make a pension contribution. Putting enough into your pension can bring your taxable income back down under £100,000 so you don’t lose any of your personal allowance. You will benefit from tax relief on your contribution too.
Let’s say your income this year is going to be £125,000. Do nothing and you’ll pay 60% tax on £25,000 – so hand £15,000 of it to the taxman. However, if you pay £20,000 into your pension, the government will add another £5,000 as basic-rate tax relief automatically, creating a total £25,000 pension contribution.
That will mean HMRC sees your adjusted net income as £100,000 (your total income minus total pension contributions) and you won’t be subject to the personal allowance taper.
As a higher-rate taxpayer, you can also fill out a tax return to claim a further 20% tax relief on your pension contribution (tax relief is equivalent to the rate of income tax that you pay). The result is that your £25,000 pension contribution has only cost you £15,000, after you reclaim the £5,000 in higher-rate relief via your tax return. (Note that some workplace pensions give you the full rate of tax relief automatically, so you wouldn’t need to complete a tax return to claim additional tax relief.)
Just make sure your pension contributions don’t exceed your annual pension allowance – which is 100% of your earnings up to £60,000 a year. If you want to pay in more than this, you may be able to carry forward unused allowances from the previous three tax years.
Be careful if you have already made a taxable withdrawal from your pension – you may have triggered the money purchase annual allowance, which limits the amount you can pay in to just £10,000 a year.
Pension contributions aren’t the only way to escape the tax trap for those with above £100,000 earnings. You can also reduce your taxable income through salary sacrifice schemes offered by your employer, such as company car schemes or additional annual leave. These let you exchange a portion of your salary for non-cash benefits, reducing the amount of income tax and national insurance that you pay.
Charity donations paid using Gift Aid can also reduce your taxable income and help you keep hold of your full personal allowance. For example, say your taxable income is £110,000. If you donate £8,000 to a charity, it can claim a further £2,000 through Gift Aid and your total donation is classed as £10,000, taking your net income down to £100,000.
Gift Aid is equivalent to the basic rate of tax, which means as a higher rate taxpayer, you are able to claim a further 20% through your tax return, as you can with pensions.
The £100k tax trap can come as a nasty surprise. The good news is that with some financial planning you can often avoid it altogether. Making extra pension contributions, using salary sacrifice or donating to charity before the end of the tax year can all make a difference.
If your income is close to the line, it’s worth getting financial advice so you know the best approach for your circumstances.
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