There is a hidden tax trap waiting for anyone whose income crosses £100,000. Between £100,000 and £125,140, the effective marginal tax rate is 60% — higher than any published rate in the UK tax system.
Most people in this bracket don't realise it's happening. Here's exactly why it occurs and what you can do about it. For a deeper dive with more examples, see our dedicated £100k tax trap guide.
How the Personal Allowance taper works
Everyone in the UK gets a Personal Allowance — £12,570 of income that is completely tax-free. But once your Adjusted Net Income (ANI) exceeds £100,000, HMRC starts withdrawing it.
The rule: for every £2 of income above £100,000, you lose £1 of Personal Allowance.
| Income | £110,000 |
| Amount above £100,000 | £10,000 |
| Personal Allowance lost (÷2) | £5,000 |
| Remaining Personal Allowance | £7,570 |
At £125,140, the Personal Allowance is completely gone.
Why this creates a 60% effective rate
In the £100,000–£125,140 band, every extra £1 you earn is taxed twice:
- 40% income tax on the extra £1 itself
- Another 40% tax on the £0.50 of Personal Allowance you lose (which was previously tax-free, now taxed)
Combined: 40% + 20% = 60% effective marginal rate.
| Extra £1,000 earned above £100k | £1,000 |
| 40% tax on the £1,000 | −£400 |
| £500 of allowance lost, taxed at 40% | −£200 |
| Take-home from that £1,000 | £400 |
| Effective rate | 60% |
This 60% rate is not shown anywhere on your payslip or tax code. It is an emergent effect of two rules interacting — which is why so many people in this bracket are unaware of it.
Who is affected?
Anyone whose Adjusted Net Income falls between £100,000 and £125,140. This includes:
- Employees with a base salary in this range
- Employees with bonuses that push them over £100,000
- Self-employed individuals with profits in this range
- People with investment income, rental income, or savings interest that tips them over
It is your Adjusted Net Income that matters — not your gross salary. ANI is gross income minus pension contributions (salary sacrifice or personal contributions with relief at source) and Gift Aid donations.
The fix: salary sacrifice
The most straightforward solution is to reduce your ANI below £100,000 using salary sacrifice pension contributions.
| Gross salary | £115,000 |
| Salary sacrifice into pension | £15,000 |
| Adjusted Net Income | £100,000 |
| Personal Allowance restored | £12,570 |
| Tax saving vs no sacrifice | ~£9,000 |
By sacrificing £15,000, you:
- Pay 40% tax on the sacrifice instead of 60% effective rate = 20% saving
- Restore your full Personal Allowance
- Build a larger pension pot
The effective cost of that £15,000 sacrifice is just £6,000 in lost take-home pay.
What about bonuses?
Bonuses are a common trigger. If your base salary is £95,000 and you receive a £10,000 bonus, your ANI hits £105,000 — and £5,000 of it is taxed at 60%.
Options:
- Ask your employer to pay the bonus directly into your pension (if they offer this)
- Make a personal pension contribution before 5 April to reduce ANI
- Increase your salary sacrifice for the remainder of the tax year
If you know a bonus is coming, increase your salary sacrifice before it is paid. Once the money hits your bank account, it is too late to sacrifice it.
Other ways to reduce ANI
Beyond salary sacrifice, you can reduce ANI through:
| Method | Notes |
|---|---|
| Personal pension contributions | Relief at source — HMRC adds 20%, you claim 20% more via Self Assessment |
| Gift Aid donations | Grossed-up donation value reduces ANI |
| Cycle to Work / EV sacrifice | Reduces gross pay, therefore ANI |
| Charitable payroll giving | Reduces gross pay before tax |
For a full list of strategies, see our guide on best ways to reduce taxable income in the UK.
The Self Assessment requirement
If your income exceeds £100,000, you must file a Self Assessment tax return — even if all your income is taxed through PAYE. This is how you:
- Declare the Personal Allowance restriction
- Claim higher rate relief on personal pension contributions
- Report any other income sources
Missing this filing requirement results in penalties.
What this means for you
If your salary is £105,000, you are already losing £2,500 of Personal Allowance and paying 60% effective tax on £5,000 of income. Sacrificing £5,000 into your pension restores that allowance and saves approximately £3,000 in tax — while the sacrifice itself costs you only £2,000 in take-home pay.
At £115,000, the numbers are larger: £15,000 of income sits in the 60% trap. Sacrificing £15,000 costs £6,000 in take-home pay but saves £9,000 in tax and puts £15,000 into your pension.
If you are close to £100,000 due to a bonus, act before the bonus is paid. Once it hits your account, the opportunity to sacrifice it is gone.
Try the TaxCal UK calculator to estimate your take-home pay.
Summary
- The Personal Allowance tapers away between £100,000 and £125,140
- This creates a 60% effective marginal tax rate in that band
- Salary sacrifice is the most efficient way to bring ANI below £100,000
- A £15,000 sacrifice on a £115,000 salary costs only ~£6,000 in take-home pay
- You must file Self Assessment if your income exceeds £100,000
FAQ
Does the 60% rate apply to everyone earning over £100,000?
Yes — it applies to anyone whose Adjusted Net Income falls between £100,000 and £125,140, including employees, self-employed people, and those with investment or rental income that tips them over.
Can I use Gift Aid donations instead of salary sacrifice to reduce my ANI?
Yes. Gift Aid donations are grossed up and deducted from ANI. However, they don't save NI — only salary sacrifice does. Use both if you donate to charity regularly.
What if I can't sacrifice enough to get below £100,000?
Every £2 sacrificed above £100,000 still restores £1 of Personal Allowance, saving 40% tax on that £1. Partial sacrifice is always worthwhile — the 60% effective rate applies to every pound in the taper zone.
Do I need to tell HMRC about my salary sacrifice?
No. Your employer reports it through payroll. But if your income exceeds £100,000, you must register for Self Assessment and file a return each year.
Does salary sacrifice affect my State Pension?
Only if it reduces your earnings below the Lower Earnings Limit (£6,396/year). For most employees, salary sacrifice has no impact on State Pension entitlement.
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